supercharge your sales force · select the right system some situations clearly call for making the...

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C O L L E C T I O N

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How Right Should the Customer Be?

by Erin Anderson and Vincent Onyemah

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Best Face Forward

by Jeffrey F. Rayport and Bernard J. Jaworski

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Ending the War Between Sales and Marketing

by Philip Kotler, Neil Rackham, and Suj Krishnaswamy

Supercharge Your Sales Force

Is your sales force fueling profits—or siphoning them off?

Product 1005This document is authorized for use only in Zonal Business Managers' Development Programme for Airtel Africa

Limited 2013. by Rekha Jain at IIM Ahmedabad from February 2013 to March 2013.

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Collection Overview The Articles

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Your sales force consumes a hefty share of your company’s budget. If reps aren’t selling effectively, your firm loses profits

and

customers.

Yet in too many organizations, salespeo-ple can’t give their best on the job be-cause the company mismanages them. For instance, some firms send conflicting messages about sales reps’ job priorities: they expect salespeople do whatever it takes to please a customer, while at the same time adhering to management dic-tates about selling methods—even if those requirements stall the sales process. Confused about trade-offs between satis-fying their manager or their customer—sales reps often fail to satisfy either.

Other companies fail to coordinate sales-people’s efforts with all of their customer-facing teams: marketers, store clerks, call center staff, and Web-site administrators. Operating at cross-purposes, these func-tions feud over roles and resources—and drop the ball while handling customers.

To stay ahead of competitors, it’s vital to correct such misalignments. This

Harvard Business Review

OnPoint collection ex-plains how. The keys? Match your sales management practices to your com-pany’s strategic priorities. Coordinate customer-facing teams so they create seamless service for customers. In particu-lar, end the war between Sales and Mar-keting, so your salespeople can capitalize on marketers’ knowledge of customers.

Your reward? A focused and effective sales force that leaves rivals in the dust.

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Article Summary

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by Erin Anderson and Vincent OnyemahHow to establish a sales management system that helps salespeople align their behaviors with your strategic priorities? Clarify your company’s needs, then establish the right set of policies for supervising, evaluating, and rewarding your sales force. For example, are your customers solving new problems and therefore need extensive information from Sales? If so, evaluate salespeople based on bottom-line results, let them make final decisions about deals, and compensate them with mostly variable pay. Do you need to protect your brand by controlling how salespeople present your offerings to customers? If so, reward salespeo-ple for their behaviors, skills, and personal characteristics; have sales managers make final decisions; and provide mostly fixed compensation.

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Further Reading

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Article Summary

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Best Face Forward

by Jeffrey F. Rayport and Bernard J. JaworskiWhen you coordinate your sales force’s actions with those of all other customer-facing groups, your company meets each customer’s unique needs during every encounter with your firm. To achieve this coordination, first understand what customers want from you in different interactions with your company. Then fit your service to those preferences. For in-stance, one customer filling a prescription at a pharmacy might want hand-holding from the pharmacist; another, privacy through anonymity. An astute pharmacist treats customer A with warmth and concern; customer B, with efficiency and reserve. Also know when to lever-age technology’s advantages over human behavior. For example, hotel kiosks that let cus-tomers check themselves in and out satisfy guests’ demand for accurate, efficient service.

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Further Reading

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Article Summary

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by Philip Kotler, Neil Rackham, and Suj KrishnaswamyFeuding between Sales and Marketing is particularly damaging to your firm’s ability to serve customers. To heal the breach, align the teams just enough to meet your company’s needs. For instance, suppose Sales and Marketing are duplicating each other’s efforts or neglecting key tasks owing to role confusion. To strengthen alignment, establish regular meetings between the teams to discuss major opportunities and problems. And define who should be consulted on which decisions (e.g., “Involve the brand manager in $2 million-plus sales opportunities”). If the business landscape is characterized by increasing complexity and rapid change, then inte-grate the two departments more tightly. For example, have downstream (strategic) marketers develop sales tools, help salespeople qualify leads, and use feedback from Sales to sell existing offerings to new market segments.

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Further Reading

This document is authorized for use only in Zonal Business Managers' Development Programme for Airtel Africa Limited 2013. by Rekha Jain at IIM Ahmedabad from February 2013 to March 2013.

1st article from the collection:


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article:

The Idea in Brief—the core idea

The Idea in Practice—putting the idea to work

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Article Summary

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A list of related materials, with annotations to guide further

exploration of the article’s ideas and applications

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Further Reading

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page 3

The Idea in Brief The Idea in Practice

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Is your company sending conflicting signals to its salespeople about their job priorities? For instance, you may reward sales reps for

what

they produce (new accounts, repeat business), thus encouraging them to do whatever it takes to please the customer. At the same time, managers may dictate

how

reps make sales (preferred techniques, ex-pense limits) implying that their real job is to please their manager. When pleasing one side comes at the expense of pleasing the other, sales reps tend to underperform—and your best people may defect.

How to resolve conflicts that may handicap your sales force? Anderson and Onyemah recommend adopting a consistent sales management system. To begin,

decide on performance criteria:

Bottom-line results or the methods used to achieve results?

Provide the right amount of management monitoring:

Do you have an inexperienced sales staff that needs coaching, or a sea-soned staff that works best when left alone?

Align compensation with perfor-mance criteria:

If you want bottom-line re-sults, use a pay-for-performance system. If you expect sales reps to use particular methods for achieving sales, pay them a fixed salary.

Align your sales management practices with your company’s priorities, and your sales force will deliver their best for their customers

and

their managers.

How to design a consistent sales management system? The authors suggest these guidelines:

IDENTIFY YOUR CURRENT SYSTEM

Does your sales management system put the customer or the manager first? This table shows examples of how each type of system works in the extreme.

IDENTIFY INCONSISTENCIES

In addition to meddling managers, inconsistencies can take other forms. For example, some managers emphasize the customer as king but don’t clarify how sales results affect individual performance evaluations and rewards.

Example:

A West African bank supposedly evaluated sales reps’ performance strictly on the volume of deposits they obtained each month. Each rep had set targets. But many salespeople who missed their targets kept their jobs. Some even got promoted ahead of superior performers. Sensing that evaluations were based on the branch manager’s whims, many high performers left.

SELECT THE RIGHT SYSTEM

Some situations clearly call for making the customer

or

manager king:

Other situations call for making the customer

and

manager king.

Example:

The insurance industry typically uses a “customer is king” system, yet many sales teams are inexperienced because of high turnover. Making the manager king would initially help junior salespeople develop—but reps will start chafing under management’s oversight as they gain experience. Solution? Run two sales forces in parallel—funneling reps from a “manager is king” system into a “customer is king” system as they become more seasoned.

“CUSTOMER IS KING” “MANAGER IS KING”

PerformanceCriteria

Bottom-line results Salespeople’s behaviors, skills, and per-sonal characteristics

Decision Making Salespeople make final decisions Managers make final decisions

Coaching Minimal Heavy

Compensation Mostly variable Keyed to customer-generated results

Mostly fixed Keyed to management’s evaluations

MAKE THE CUSTOMER KING IF… MAKE THE MANAGER KING IF…

Customers are solving new problems and need ex-tensive information from Sales.

Salespeople lack experience.

Customers have forged strong ties with your sales-people.

You need to protect your brand by controlling how salespeople present your offerings to customers.

Salespeople’s skills and knowledge—not your pricing or advertising budget—determine whether your firm closes sales.

You want salespeople to contribute to important nonsales priorities, such as marketing, strategy, and product development.

There are many ways to close a deal, so you don’t want to impose managerial preferences on sales-people.

Your sales records don’t quantify each salesper-son’s contribution, so a workable variable-pay for-mula isn’t possible.




harvard business review • hbr.org • sales • july–august 2006 page 4

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Strategy suffers and execution fails when companies don’t help

salespeople manage the tension between serving the customer and

serving the company. A holistic sales force control system can improve

alignment and results.

Every one of your salespeople will tell you thatthe customer is king. Sometimes, they’ll meanit, and that’s usually a good thing. If you pressthem, your salespeople may even tell you thatthe district or regional manager is king, andthat’s not necessarily a bad thing either. Theproblems come when your salespeople aren’tquite sure who their boss is. Their confusioncould be a sign that your company’s sales forcecontrols—the various policies and practicesthat define the way you manage your salesteam—are in conflict with one another. In re-searching sales and sales force dynamics overtwo decades, we’ve found that this misalign-ment invariably creates problems in salesfunctions. As salespeople struggle to resolve orwork around the conflicts within the system,the consequences mount—first affecting indi-viduals, then spreading to the entire salesforce, and eventually hobbling the whole orga-nization. Over time, the sales force begins los-ing its best people. Turnover rates soar. OneEuropean multinational we studied had losthalf its salespeople in its home market every

year for five years. Even if a company isn’t insuch obviously dire straits, it may still be leav-ing a lot of money on the table.

Our statistical study of more than 2,500salespeople working in 38 countries for 50companies suggests there are significant,often overlooked, differences between man-agement systems that encourage salespeopleto put the customer first and those that en-courage sales reps to put their district or re-gional managers first. In this article, we’ll de-scribe the potential fallout from conflictswithin your sales force management system,and we’ll explain how you can tell which kindof control system is appropriate for your com-pany’s strategy, competitive environment, ca-pabilities, and time horizon.

A Tale of Two Cultures

The culture and effectiveness of any salesforce are products of its management system:the rules that govern the way a company trains,monitors, supervises, motivates, and evaluatessalespeople. The system signals, in a continu-


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harvard business review • hbr.org • july–august 2006 page 5

Erin Anderson

([email protected]) is the John H. Loudon Chaired Professor of International Man-agement at Insead in Fontainebleau, France, and the director of Leading the Effective Sales Force, a joint program of Insead and the Wharton School in Pennsylvania.

Vincent Onyemah

([email protected]) is an assistant professor of marketing at Boston Uni-versity’s School of Management.

ous and more-or-less automatic way, whatmanagement expects from its sales team. Itconveys to salespeople which trade-offs thecompany would prefer them to make when theinevitable conflicts arise between what theywant to do (spend lots of time and money toget a sale) and what they actually can do (utilizelimited resources and still get the sale). Thesystem also affects the way sales reps perceivebusiness challenges, how they think and feelabout their roles, how they go about their jobs,and what kinds of indicators they focus on.

All sales force management systems haveeight basic components. Among these are thedegree of management’s intervention indaily sales activities, the types of compensa-tion offered to salespeople, and the numberand types of criteria managers use to evalu-ate salespeople’s performance. (For a com-plete list, see the exhibit “Who’s Calling theShots?”) The policies and practices that makeup each component can be placed somewhereon a continuum between systems that encour-age sales reps to put the customer first—whatwe call outcome control (OC) systems—andthose that get them to put the district or re-gional manager first—what we call behaviorcontrol (BC) systems. Companies that rely onOC systems focus on getting salespeople todeliver certain kinds of results and are essen-tially indifferent to how those results are ob-tained. By contrast, firms that rely on BC sys-tems value

how

people make sales more thanthe number of sales they make.

OC systems: The customer is king.

Com-panies with outcome control systems mea-sure and reward results—the outcomes ofsales reps’ interactions with customers. Theseresults can take many forms: sales, margins,contributions to profit, share of customer wal-let, market share, sales of new products, re-peat business, on-time collection of receiv-ables, and so forth. Companies tend toemphasize and track only a few of these re-sults. Firms with OC systems typically tie sales-people’s compensation closely to two or threekey metrics, and a substantial portion of eachsalesperson’s compensation is determined bycustomers’ behavior.

Salespeople at OC firms enjoy considerableautonomy and are expected to use it. Thecompany sees them as entrepreneurs whocraft and execute personal strategies to findand land their customers. The reps place

more importance on pleasing their customersthan on pleasing their managers. They willalways take the customer’s side in negotiatingwith the company because that relationshipwill always be more important for them. Theemployer is simply an income-producing en-tity, and, as a result, salespeople at OC firmsare likely to switch to any employer who of-fers a more promising pay package and betterproducts to sell.

Managers in OC systems are few andstretched thin, often because they are expectedto generate their own sales as well as supervise.They often have minimal contact with theirsalespeople. In fact, they don’t really managetheir staffs in the traditional sense. Instead,they negotiate with their direct reports, seek-ing to convince them that what managementwants is in the best interests of the sales team.

The culture in OC firms is competitive.When a sales rep makes a big sale, everyoneknows it. Rewards are tangible—somethingthe neighbors and mothers-in-law can see. Thisincludes money, of course, but also trips, cars,merchandise, expense account lifestyles, andsymbols of recognition such as plaques, tro-phies, or pictures in the company newsletter.Salespeople in these systems have no qualmsabout showing off their rewards because theyknow they may not always have them. If re-sults fall off, they pay the price.

BC systems: The manager is king.

Com-panies with BC systems evaluate and rewardwhat salespeople bring to the job. Manage-ment measures what salespeople

actually

do—their efforts, activities, hours, expenses, andthe like. It measures what salespeople

can

do (theoretically, at least)—their knowledge,skills, competencies, and aptitudes. And itmeasures what salespeople

are

—their appear-ance, hygiene, education, age, and so on. Salesmanagers at BC firms also rely on a plethora ofperformance criteria, many of them subjec-tive (How attractive is this salesperson?) or dif-ficult to observe (How good are her closingabilities?). Indeed, the evaluation standardsare often opaque, and the managers them-selves may not be sure just how they applythem. The bulk of compensation in BC compa-nies is fixed (capped salaries), and the variablecomponent is tied to the attitudes, behaviors,and competencies that management prizes.

Because performance evaluations and com-pensation are inextricably linked in BC systems,


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Who’s Calling the Shots?

The policies and practices that make up a sales force control system can be categorized into eight components. These re-flect the key questions senior management needs to ask about the way it conducts its sales business. How manage-

ment answers can help determine whether it employs an outcome control system, a behavior control system, or some combination of the two.

System Component

1. Focus of performance criteria. Doesmanagement value how sales results areachieved (the effort expended) or simplythe results themselves (the outcomes)?

2. Number of performance criteria. Doesmanagement judge salespeople usingonly two or three factors, or does it look at a dozen or more metrics?

3. Degree of management intervention.

Who makes the final decision on impor-tant issues related to sales assignments,the salesperson or the manager?

4. Frequency of contact. Are interactionsbetween salespeople and managementeasy to enact?

5. Degree of management monitoring.

Does management show serious inter-est in salespeople’s call and activity re-ports, or are these just a bureaucratic requirement?

6. Amount of coaching offered. Does management suggest ways that sales-people can improve their selling skillsand abilities?

7. Transparency of evaluation criteria.

How objective, clear, and precise are evaluations at the company?

8. Compensation scheme. Is the paycheckbased largely on variable compensationtriggered by outcomes? Or does it have a large salary component with a perfor-mance bonus driven by management’sjudgments?

Customers call the shots:Outcome Control

Managers pay particular attentionto bottom-line results.

Management evaluates a salesper-son’s performance according to afew observable metrics, primarilythose controlled by the customer.

Managers offer relatively little supervision. Salespeople makefinal decisions.

Managers and salespeople have little to no contact.

Management rarely monitors itssales staff.

Managers offer little to no coaching.

Evaluation criteria are very transparent.

A salesperson’s compensation ismostly variable, keyed to customer-generated results.

Managers call the shots:Behavior Control

Managers pay particular attention to the methods used to achieveoutcomes.

Management evaluates a sales-person’s performance subjectively,using many criteria.

Managers offer relatively heavy supervision and make final decisions.

Managers and salespeople are frequently and extensively in contact.

Management constantly monitorsits sales staff.

Managers offer frequent, heavycoaching.

Evaluation criteria are opaque.

A salesperson’s compensation ismostly fixed, keyed to salary andmanagement’s evaluations.


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sales managers’ words of guidance aren’t allthat different from their explicit directives.Salespeople in BC firms are attentive to anyand all management cues. They talk about whatthe company wants, expects, and rewards—and what it will want, expect, and reward inthe future. It’s clear that, at some level, some-body is worrying about the numbers. But inthe here and now, salespeople focus on, de-mand, do, and become whatever they thinktheir first-line supervisors will work into theirperformance evaluations.

While salespeople at BC firms care abouttangible, visible acknowledgements, much oftheir motivation rests on intrinsic rewards suchas feelings of achievement, personal growth,and self-worth derived from solving problems,and the satisfaction of offering good service.Factors such as collegiality, training, potentialfor promotion, and office perks matter tothem. And while sales reps in BC systems takethe customer’s side to some extent, theyreadily understand that the company mustcapture its fair share of value.

Of course, the two control systems are at ex-tremes, and many companies function quitewell somewhere in the middle, where thepower of the manager and the power of thecustomer are in some sort of balance. Indeed,this is where most sales forces should be. Few

firms should be turning over wholesale controlof their salespeople to just the customer or justthe sales manager.

Maintaining the balance, however, is diffi-cult because people have a natural tendency towork toward the extreme that suits them. Overtime, a company’s most experienced, successfulsalespeople will generally push for an outcomecontrol orientation—especially for OC-stylecompensation. They deliver results, and theyknow these results will usually trump the salesmanager’s concerns in the eyes of that man-ager’s own boss. For their part, sales managershave a natural tendency toward empire build-ing and want more obedience from their sales-people, so they will naturally push for a behav-ior control system. They will probably insistthat salespeople involve them more in theselling process, hand in reports on sales calls,and so forth.

Taken singly, each incremental change lob-bied for and made will seem reasonable. Col-lectively, such changes can spell disaster. Em-powering salespeople to go get results has itsvirtues. Likewise, limiting salespeople’s auton-omy offers advantages. But managers maynot see that trying to do both at the sametime doesn’t work. Eventually, various com-ponents of the sales force management sys-tem start migrating to different extremes. Acompany may use many criteria to evaluateits salespeople (BC style) but may also offerminimal or no monitoring and coaching (OCstyle)—and the system as a whole loses consis-tency. Because it happens slowly, many orga-nizations are oblivious that their control sys-tems have become misaligned. Salespeoplehave learned to live with it—or have quit.Managers have come to accept it and perhapslike it. (See the sidebar “Your Sales Force IsMisaligned—Why Haven’t You Noticed?”)Bringing all the elements of a sales organiza-tion back into alignment can be politicallyand financially difficult. And since firms aren’taware of the results they

could

be getting,they don’t realize that their inconsistent con-trol systems are hurting their performance.

Gauging Your Consistency

To get a sense of how consistent your salesmanagement efforts are, it might be useful torender the system graphically. (See the exhibit“How Consistent Is Your Control System?”)For each of the system components, plot

Your Sales Force Is Misaligned—Why Haven’t You Noticed?

On the surface, inconsistent control systems can seem quite stable. That’s because there are always people who not only survive but actually thrive in the inconsistent environment. These individuals’ work experiences and sales results give them enough sense to use those parts of the system that work for them and ignore the components that don’t. These people, over time, develop coping mechanisms and find opportu-nities in the contradictions in the sys-tem. Such salespeople aren’t always homegrown; they may have honed their coping skills elsewhere. But what they may lack in political capital at the company, they make up for with some other asset—a deep Rolodex, for in-

stance, or an industrywide reputation.If a sales force has a lot of these people,

and as long as they perform well enough to offset the nonperformers, an inconsis-tent control system can seem fine for quite a long time before the defects be-come apparent. It’s usually not a sustain-able situation, though. The stars will eventually retire, and as they approach retirement, they will slow down. Mean-while, it’s unlikely that the company will be able to hold on to enough of its most promising newcomers to replace the pro-ductivity of the senior salespeople. And recruiting the right kind of outsiders in any quantity will be impossible. When the situation does start to unravel, it will happen fast.


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where your approach to sales force manage-ment falls on the outcome control–behaviorcontrol continuum. If your system is consis-tent, the points should fall roughly in astraight line. If your system isn’t consistent,you will observe a pronounced zigzag design.

There are three common patterns of inconsis-tency. The most frequent type of mismatch ischaracterized by “the ever-present manager.” Anexample of this would be a company that gener-ally uses an outcome control system—managersfocus on a handful of important results whenevaluating sales reps’ performance and calibratecompensation accordingly—but that has inter-ventionist managers (BC style), who have regu-lar contact with salespeople and monitor thereps’ activities intensely. Yet for all their interac-tions, the managers don’t coach as much as atrue behavior control system calls for. In this sys-tem, salespeople will resist management’s inter-ference and will try to focus on pay and bottom-line sales figures. Meanwhile, managers will try

to correct salespeople’s “excessive” focus on gen-erating “unprofitable” orders, will complain thatsalespeople are uncooperative, and will strug-gle to redirect salespeople’s attention to what-ever the managers think should be done. Wefound just this situation at a company sellingpremium graphic services. Because the firm’s cli-ents differed in size and needs, salespeople hadto tailor their product pitches to each buyer andoccasion. The reps were paid largely on commis-sion and were evaluated on a handful of salesperformance indicators, which encouragedthem to do whatever they had to in order tomake the sale. But they also had to contendwith interventionist managers, who workedovertime to find out what the salespeoplewere doing and would frequently tell them todo something else. The friction this createdsapped everyone’s energy, to the customers’ det-riment. Fortunately, the firm’s sales managersrecognized the problem in time and made an ef-fort to intervene less.

How Consistent Is Your Control System?

To find out where your company falls on the outcome control–behavior control contin-uum, consider each of the eight basic system

components and indicate which camp you fall in (or closest) to. If you can plot a rela-tively straight line, your system is well bal-

anced. If the line zigzags, you need to take a closer look at how your sales function works.

Focus of performance criteria

Number of performance criteria

Degree of management intervention

Frequency of contact

Degree of management monitoring

Amount of coaching offered

Transparency of evaluation criteria

Compensationscheme

lortnoC roivaheB lortnoC emoctuO

Common patterns of inconsistency

ever-present manager

black hole

sublime neglect


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Another common mismatch, “sublime ne-glect,” is characterized by a BC system thatdoesn’t provide salespeople with sufficientcoaching from and contact with management.Salespeople don’t know what managementthinks and how they should behave—and thecustomer is not empowered to fill the vacuum.At one company we studied, a health manage-ment firm, the sales management system’s val-ues, metrics, and evaluation were essentiallyabout behavior control. But the managers whowere supposed to coach and monitor salespeo-ple were largely absent; they had their ownselling responsibilities. So it was difficult forthe sales reps to obtain the guidance theyneeded to work effectively. The company’s fre-quent rotation of sales managers aggravatedthe problem: The salespeople constantly hadto adapt to new and idiosyncratic demandsfrom new chiefs. (Remember: If the boss isking, his whims must be taken seriously.)

The third common type of inconsistent sys-tem, “the black hole,” is characterized by a fun-damentally OC system with opaque evalua-tion methods. Salespeople feel like theorganization is focused only on results; howthose results translate into individual perfor-mance evaluations (and corresponding payraises and other rewards) is a mystery. Sales-people in companies with these characteristicsare cynical about a culture they consider arbi-trary and political; high performers becomefrustrated and lose motivation. That was thecase at a large bank in West Africa we studied.It employed close to 4,000 salespeople, whocalled on individual customers for deposits.The typical salesperson was a college graduatewith little or no banking experience. In theory,a sales rep’s performance was evaluated strictlyin terms of the volume of deposits he or sheobtained each month; each rep had to hit a settarget. In practice, however, many salespeoplemissed their targets yet kept their jobs. Someeven got promoted ahead of superior perform-ers. The salespeople sensed that evaluationswere based on the branch manager’s whims.The high performers felt unfairly treated, andmany eventually left the company.

Which System Do You Need?

System consistency isn’t the whole story. Yourstraight line also needs to be in the right placeon the outcome control–behavior control con-tinuum. The location will depend on your

company’s situation—the constraints it facesand the resources, strategy, internal culture,and time horizon it has. It will also depend onthe environment in which you operate. Firmsneed to bow to local cultural and legal norms.Outcome control systems are much better re-ceived in some cultures (such as the UnitedStates, Canada, Argentina, Italy, southern Ni-geria, or parts of India) than in others (such asSweden, Japan, or Korea). A firm with globalreach, therefore, should have multiple controlsystems for its various sales forces. That said,our study indicates there are general situa-tions that clearly call for an OC system andothers that require a BC system.

When outcome control fits.

As a generalrule, outcome control fits when your salespeo-ple have a substantial influence on results—that is, when their skills and efforts are thebiggest determinant of sales. This is equiva-lent to saying that sales force elasticity is high(changing sales campaigns or salespeoplewould have a big effect on results). Whensales reps make that big of a difference to thebottom line, it is worth it to give them auton-omy and to pay them handsomely to do whatthey do. Specifically, OC is the right system inthe following situations.

•

Customers need information.

When cus-tomers are solving a new problem or contem-plating new solutions to existing problems, theyneed a great deal of information. They don’tknow what they don’t know, but they realizetheir decisions have high stakes. Such custom-ers will take their time, gather information, andprocess it. In this situation, a good salespersonslowly and invisibly frames the customer’sthinking—and an OC system will ensure thatthe rep is putting forth his or her best effort.

•

The sale is open.

In some companies, cer-tain sales transactions have an air of predict-ability or presale momentum. The firm withthe biggest advertising budget or the lowestprice usually takes a commanding lead over itsrivals. But in many sales situations, it’s hard toforecast who will win. That’s when a goodsalesperson can sway decisions. As in theneed-for-information scenario, an OC systemcan inspire salespeople to work their hardestand think more creatively.

•

Customers trust the salesperson.

In some in-dustries, customers can forge strong ties to asalesperson and will buy whatever he or sherecommends. For instance, customers will let a

Few firms should be

turning over wholesale

control of their

salespeople to just the

customer or just the sales

manager. There needs to

be a balance of power.


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great salesperson from an investment servicesfirm frame their thinking. They trust “their” fi-nancial adviser. Such advisers are more likely tobe working in an OC system than in a BC sys-tem.

•

There are many ways to close the deal.

AnOC system works when you know that manydifferent behaviors can be effective in generat-ing results. In that case, why impose manage-ment’s favorites? OC also fits when you don’tknow which behaviors work and which don’t.For instance, the insurance industry reliesheavily on OC systems because it is dealing withboth classic customer interactions (constant,cyclical demand for products like life insuranceand car insurance) as well as niche sales situa-tions (insurance plans for people with certainpreexisting health conditions).

The OC firm must permit its salespeople tobe independent, which can be difficult. One ofus ran a meeting of sales managers in a would-be OC firm. For 20 minutes, it proved impossi-ble to get down to business. Why? The manag-ers wanted to complain about how disrespect-fully their subordinates treated them. Thecomments from one salesperson about a man-ager’s ugly ties were bad enough, the manag-ers said. But when one sales rep reminded ev-eryone in a meeting that the top salesperformer that year had earned more than themanager? Well, that was outrageous, the man-agers said. In truth, real OC firms wouldn’t con-sider such behavior outrageous. They wouldcelebrate it—even if the top salesperson mademore money than the CEO.

Many companies are like the one we ad-vised: They try to keep the paychecks in linewith the hierarchy. This is dangerous. If man-agement in an OC system announces caps onincome—or worse, imposes them after a salescampaign is under way—it will cost that com-pany more in the long run than it will save. Ifyour internal culture cannot accept thatsomeone who is “just a salesperson” might beautonomous and wealthy (just like an entre-preneur), OC is not for you. This is a majorreason why OC firms are less common inmany national cultures, such as France andGermany, both of which place great impor-tance on hierarchy.

Finally, for an OC system to work properly,you need an excellent accounting system. Itshould be timely (you can’t wait too long topay people), accurate (you don’t want to have

to reissue paychecks), and appropriate (reflect-ing who is selling what to whom). Many firmssimply cannot measure outputs well enoughby themselves to operate an OC system; theyhave to invest in information systems that cando the work for them. An express-delivery firmwe worked with spent millions to reconfigureits IT system, which could only track packagesfrom warehouses to recipients. The new sys-tem tracks packages from senders—rightdown to the individual who made the deliveryrequest—and links the information back to thesalesperson who then targets that individual.Similarly, drug companies work with third par-ties, such as IMS Health (a provider of marketintelligence to the health care industry), to col-lect information on filled prescriptions frompharmacies. The drug companies then matchthe data to individual physicians (in the UnitedStates) or to physician groups (in Europe) and,further, to the salespeople who call on thesedoctors and medical groups.

When behavior control fits.

In general, youneed a BC system when your salespeople can’tfigure out what to do with their autonomy.Otherwise, customers’ demands will driveyour salespeople to errors that will rebound toyour detriment. Specifically, BC systems are agood match in the following scenarios.

•

Your salespeople lack experience.

It takesboth savoir faire (know how to do) and savoirêtre (know how to be) to master sales in thefield. Without these aptitudes, inexperiencedsalespeople will flounder and take shortcuts,even some unethical ones. If they manage tosurvive at the company, they will retain thesuboptimal habits that got them where theyare. This is a major reason why the insuranceindustry is under regulatory pressure in manycountries. Because of the field’s reliance onoutcome control and the inexperience ofmany sales teams due to high turnover, manysales reps are selling the wrong products to thewrong people. Government demands for com-pliance are really calls for behavior control inan industry habituated to outcome control.Switching to a BC system, however, is not acomplete solution. Junior salespeople whowill initially thrive under a behavior controlsystem will chafe as they gain experience.That’s why many insurance companies runtwo sales forces in parallel—one OC, and oneBC. Salespeople are funneled into the OC sys-tem only after they have proven themselves in

Many companies try to

keep the paychecks in line

with the hierarchy. This

is dangerous.


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the BC system. Interestingly, firms that haveutilized these twin tracks have discovered thatmany salespeople never really want to leavethe BC system and that many of the salespeo-ple in the OC system voluntarily switch backto BC. By running parallel systems, firms canaccommodate their sales reps’ changing needswithout losing talented, experienced people.

•

You need to protect your brand.

Many com-panies have a legitimate need to control howsalespeople present their products or services.Your firm may have, or may be trying to build,high brand equity. Or it may be selling a prod-uct or a service that is dangerous if it’s usedincorrectly. In either case, it is critical for yoursalespeople to present your product or servicein excruciatingly correct detail. Misrepresenta-tion, either by omission or commission, is un-acceptable. This may be partly why pharma-ceutical and chemical industries rely on BCsystems to manage their sales forces.

•

You have high nonsales priorities.

Behaviorcontrol is the right choice when you want yoursalespeople to set high nonsales priorities,such as participating in new product develop-ment. While such efforts contribute indirectlyto current sales and directly to future sales, anOC system—with its focus on the here andnow—will encourage salespeople to neglectthem. In general, the more you want your

salespeople to act like your marketing or strat-egy people, the more you need to tweak theirjob descriptions, alleviating for them the bur-den of closing sales to create their paychecks.Behavior control systems are also better forfirms that want to develop leaders and manag-ers. Indeed, that’s why we often see OC firmspoaching people from BC firms: The OC com-panies don’t have the right kind of system togrow good sales managers.

•

It’s hard to assign sales credit.

BC systemsimpose fewer demands on accounting thanOC systems do, and many firms use behaviorcontrols simply because their sales recordsdon’t tell them how much each individual con-tributes, which makes it difficult to find aworkable variable-pay formula. In situationslike this, managers can avert endless disputeswith their sales staffs by using behavior con-trols. In some cases, the problem is not somuch that a good pay package can’t be de-signed; it’s that no one can agree on what theappropriate drivers are.

People often find it easier to adapt to be-havior control systems than to outcome con-trol systems. That’s because BC systems con-form to people’s natural instincts to createhierarchies—but they require far more over-head. Behavior control not only imposes sala-ries on salespeople but also requires a large

What Price Are You Paying?

In many industries, a salesperson must call on a prospect at least four times to get that first order. The sales rep’s efforts after the fifth call boost sales dramatically, but, eventu-ally, the orders taper off. At that point, any extra effort the salesperson expends has little, if any, payoff. A smart (or well-managed) rep instead turns his attention to another goal. Each time the salesperson eyes a new target and investigates ways to approach the thresh-old for that target, he needs to muster his re-sources (time, energy, attention, and so on).

Here is where inconsistent control systems do their greatest harm: They send the mes-sage that too many things need the sales rep’s attention. Lacking a sense of priorities, the salesperson dissipates her resources try-ing to meet too many goals. She does some of everything because everything is impor-tant. In the end, she never passes the thresh-

old performance in whatever goal she’s pur-suing. Yet she’s still expending resources, making investments that won’t offer returns. After all, customers don’t give salespeople partial credit for their good intentions and fragmented efforts.

In an inconsistent system, salespeople feel like there is no overall logic, no unified direction, to their efforts. They get worn down and worn out. For instance, a salesper-son, in an attempt to cover every base, might decide to play it safe and respond to every signal that emanates from management. Suppose that she were expected to make lots of sales calls and write detailed reports on each. She probably wouldn’t be able to make enough calls to generate the sales expected of her, and she wouldn’t be able to write very informative reports because she couldn’t spend enough time per call. If she decided to

respond to only some of management’s cues, she would run the risk of choosing the wrong ones to follow.

In an inconsistent environment, morale gradually declines. Because the sales rep can’t get a succinct message about what is expected of him, he experiences a gnawing sense of “I don’t know how I’m doing, let alone what I’m doing.” He is consumed by the feeling that there is no way to satisfy all the players—the company, the district manager, the customer. He becomes frustrated and unmotivated, which may lead to his withdrawal and lower performance. Sales managers in inconsistent systems may notice increasing use of unethi-cal practices as their sales reps take shortcuts to deal with conflicting demands. Eventually, this dysfunctional dynamic is reflected in the bottom line: The company’s sales expenses creep ahead of the competition’s.


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number of powerful managers who, in turn,need a sensitive, thorough information sys-tem that tracks salespeople, their territories,and their competition. Without such a sys-tem, managers can’t craft effective sales strat-egies and measure their results. BC onlyworks when you know which behaviors to askfor and which behaviors to discourage.

• • •

Ultimately, managing a sales force comes downto helping your salespeople align their prioritieswith the company’s. The best sales force man-agement system—customer is king, manager is

king, or some balance of the two—is the onethat fits your selling process, time horizon, mis-sion, culture, and information systems. Weigh allthe elements pulling you left (OC) or right (BC).In most cases, the best choice will be a consistentsystem that’s somewhere in the middle.

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page 13

Further Reading

A R T I C L E S

What Counts Most in Motivating Your Sales Force?

by Stephen X. Doyle and Benson P. Shapiro


May 1980Product no. 80305

These authors affirm the importance of a consistent sales management system to motivating your sales force. And consis-tency derives from clarity. Salespeople excel when you clarify the link between the tasks you’re asking them to carry out and the sales results they can expect to generate. To provide task clarity, deliver performance feedback in a timely manner and in a form that expresses salespeople’s performance in measurable terms. You also improve consis-tency of your sales management system when you clarify the relationship between sales results and compensation and re-wards. When the link between individual ef-fort and results is clear, incentive pay has a particularly large motivational impact. If that link is necessarily unclear (for example, in a company that has difficulty crediting revenue to the individual who produced it), a straight salary is more motivating.

How Low Will You Go?

by Mary Edie Mobley and John Humphreys


April 2006Product no. R0604A

In a “customer is king” system, where compa-nies let salespeople determine how best to close deals, ethically questionable sales prac-tices can arise. This fictional case study ex-plores one such practice and considers the complex implications for the company. In the case, a successful sales manager at an engine-parts manufacturer woos a potential new cus-tomer by bringing its representatives to a strip club—closing a multimillion-dollar contract afterward. The deal brings in much-needed revenues during a major expansion effort. But it spawns problems within the sales force. One valued female rep loses respect for the organi-zation and resigns. Another alludes to discrim-ination because the sales manager won’t let her bring clients to the same club. Four ex-perts—a director of institutional sales and customer relations at an investment firm, a former dancer, and two professors of busi-ness—offer their perspectives on the ques-tions raised by the case.


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In this age of commoditization, new prod-ucts and services become generic faster than ever. Your company can no longer count on innovative offerings to create sus-tainable success. The final frontier of com-petitive advantage? The quality of custom-ers’ experiences with your company. Consider this research finding: Service qual-ity carries five times more weight in influ-encing purchase decisions than a product’s features, performance, and even price.

But most companies serve their customers through flawed interfaces: too many peo-ple and too many machines—store clerks, Web sites, catalogs, call centers, voice re-sponse devices—often operating at cross purposes. Result? Rising complexity, costs, and customer dissatisfaction.

How to perfect your service quality—and leave rivals behind? Organize your cus-tomer interfaces into one coordinated sys-tem. Then ensure that the system’s compo-nents work together to create satisfying experiences for customers

every

time they interact with your firm.

By combining the unique strengths of peo-ple (conveying empathy, handling excep-tions) and technology (performing rote tasks, processing information), top-notch customer interface systems give each cus-tomer what he wants—whether it’s effi-ciency, information, advice, social contact, or anonymity.

When you crack the code of successful cus-tomer interface systems, your customers view

your

service as more valuable than your rivals’. And you take a crucial step to-ward owning the competitive future.

In exceptional customer interface systems, the interfaces (whether human or machine) suc-ceed along four dimensions:

•

Physical presence and appearance: The Four Seasons Hotel boasts a uniformed, clean-cut, businesslike, and courteous frontline staff.

•

Knowledge: Amazon’s Web site has ency-clopedic knowledge of the company’s enormous stock, seemingly perfect re-call of what customers purchased in the past, and the ability to make well-informed recommendations.

•

Emotion: Southwest’s flight crews use humor to add emotional value to travel-ers’ experience.

•

Connectivity: Amazon’s user community enables customers to tap into each other’s experiences to select products.

To create a customer interface system that meets these criteria:

UNDERSTAND YOUR CUSTOMERS’ DESIRED EXPERIENCES

Customers in different situations want differ-ent things from an interface. Fit your service interactions to suit customers’ preferences.

Example:

One customer filling a prescription at a pharmacy might want hand-holding by the pharmacist; another, privacy through ano-nymity. An astute pharmacist treats the first customer with warmth and concern; the second, with efficiency and reserve.

LEVERAGE TECHNOLOGY’S STRENGTHS

In many service settings, machines outper-form human beings in managing interactions and relationships. Invest in technologies that compensate for people’s shortcomings.

Example:Some hotels offer lobby kiosks that enable customers to check themselves in and out, get room keys and billing statements, up-grade rooms, leave messages for other guests, and print boarding passes. Custom-ers get accurate, efficient service; the hotels cut personnel costs.

DECIDE W HERE SERVICE WORK SHOULD BE DONE

Some service work is more accurately per-formed remotely. For instance, McDonald’s realized that fast-food drive-through clerks record 50%+ of orders incorrectly owing to distracting noise from food-service opera-tions. The company placed drive-through op-erators in remote, centralized call centers, where operators manage order taking for sev-eral restaurants simultaneously.

OPTIMIZE PERFORMANCE ACROSS YOUR SYSTEM

Customers using multiple channels to buy from you (store, catalog, Web site) spend four times as much as single-channel users. To capitalize on these customers’ economic potential, simplify interfaces that confuse or impede customers in the buying process. Give the lion’s share of your attention and resources to interfaces your customers use most.

Example:TV-shopping network QVC invested heavily in the Web in South Korea, where high-levels of broadband penetration of Korean homes put the Web (enhanced by streaming video) ahead of television broad-casts as the company’s most heavily used customer interface.


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The new frontier of competitive advantage is the customer interface.

Making yours a winner will require the right people—and,

increasingly, machines—on the front lines.

How do you serve your customers? Let us countthe ways. You serve them through your retailstores, through your Web site, through your cat-alog and customer service call centers. Youserve them through touch points that are hu-man, like clerks and concierges, and you servethem through touch points that are automated,like vending machines and voice responseunits. If yours is like most companies, it has abroad collection of these interfaces and is in-vesting in even more. But what it probablydoesn’t have is an interface system. That is tosay, all of those ways you connect and interactwith customers don’t add up to an integratedand unique capability to manage relationships.

Unless you manage it explicitly for advantage,that portfolio of interfaces is going to becomeyour biggest liability. Too many people and toomany machines operating with insufficient coor-dination (and often at cross-purposes) will meanrising complexity, costs, and customer dissatisfac-tion. Turning that liability into a competitiveasset is possible—indeed, it’s what will separatethe winners from the losers in practically every

industry sector. But realizing new levels of effec-tiveness and efficiency will require a serious re-engineering effort.

Perhaps in the context of the front officethe term “reengineering” is surprising. Sinceit took the business world by storm in the1990s, the approach has usually been appliedto behind-the-scenes operations. But reengi-neering’s principles—starting with a cleanslate, redesigning processes in light of currentcapabilities—are strikingly suited to today’sfront office. Every indication, whether it bedeclining customer satisfaction indexes orthe actions of the typical retail employee, sig-nals that the customer interface is ripe for re-invention. At the same time, the rapid evolu-tion of what we call “interface technologies”is making the reinvention of frontline serviceinteractions—and of the entire service sector—possible.

Reengineering the front office will probablynot be much easier than reengineering theback office. In some respects it will be harder.But consider the alternative. Your interface sys-


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tem is ultimately the face your company pre-sents to customers and markets. Can you af-ford not to put your best face forward?

The Interface ImperativeThe truth is that interactions with customers,and the customer experiences that result fromthose interactions, are, for many businesses,the sole remaining frontier of competitive ad-vantage. If this seems to overstate the point,consider the four broad trends that havebrought us to this watershed.

First of all, competitive differentiation alongtraditional dimensions of corporate perfor-mance is becoming largely unsustainable. Oursis an era of near total commoditization. Sev-eral years ago, consumer electronics executivesin Taiwan developed the habit of using the En-glish phrase “three-six-one” to refer to the com-petitive dynamics of their business. What theymeant was three months to create a feature,function, and price configuration that differen-tiated an offering in consumer markets; sixmonths to harvest the margin afforded by thatdifferentiation; and one month to liquidate ex-cess inventory after the offering became acommodity. A ten-month product life cycle!Such abbreviated life cycles have infectednearly every industry (partly as a result of thediffusion of electronics itself into every sectorof the economy), making new offerings ge-neric or obsolete faster than ever before. Sec-tor after sector in the economy suffers fromovercapacity. And margins, even for highly so-phisticated technology products, are difficultto maintain. For most businesses in most in-dustries, the opportunities to create sustain-able offerings-based advantages are few and farbetween—or simply nonexistent.

Second, there is longstanding evidencethat quality of service matters very much tocustomers—in many cases, much more thanprice or performance. One large-scale researchstudy spanning consumer and industrial busi-nesses, for example, measured the role of servicequality in customers’ decisions to switch vendors.The variables the researchers examined wereservice quality, product features and functions,performance, and price. The results showedthat service quality had five times more weightin influencing purchase and repurchase deci-sions than any other attribute tested.

Third, given the greatly expanded scope ofservice work in the economy, finding appropri-

ately skilled labor is getting harder and harder.In most developed countries today, the vast ma-jority of jobs are service oriented and involve in-teraction with customers. Recent data from theU.S. Bureau of Labor Statistics indicate that over90% of workers in industrialized economies areemployed in service positions. Back when front-line employees represented a small proportionof the total workforce, it was easier for compa-nies to fill customer-facing jobs with cream-of-the-crop talent. Companies trying to staff theirfront lines today are dipping much deeper intothe labor pool, tapping less skilled workers. Air-lines, hotels, and retailers of all stripes have anotoriously hard time recruiting and retainingmotivated and presentable individuals for front-line positions. Consider fast food. Franchisesrecruit high school students, who spend an aver-age of four or five months in these jobs. Thelow-skill workforces that fast-food franchisesfield have an annual turnover of 138%. This is abig part of why corporate America spends $50billion a year on the remedial education of itsworkers. To be effective in customer-facing roles,employees must be literate and numerate and,ideally, have analytic capabilities, well-honed in-terpersonal skills, and emotional intelligence.The cost of such talent will only escalate as thebaby boom generation ages and exits the work-force and demand for such labor grows.

Finally, new forms of interface technologyare emerging that can assist frontline employ-ees or stand in for them in customer-facingroles. Over decades, we have seen a gradual en-croachment of machines upon traditionallyhuman tasks involved in delivering services,managing relationships, and interacting withcustomers. Customers have become more andmore comfortable dealing with machinesthrough interactions with companies’ offer-ings, and the technology inherent in thosemachines has advanced. Machines are prov-ing to be viable alternatives not merely for pro-cessing rote transactions but for managinghuman interactions in sophisticated and un-precedented ways.

If you’ve been to an REI store, for example,you’ve probably seen one such innovation, in-teractive kiosks, in action. The kiosks augmentthe sporting goods stores’ available SKUs(which number about 30,000) by allowing cus-tomers to order from a catalog of more than78,000 items. More important, they also aug-ment the sales clerks’ knowledge of product

Jeffrey F. Rayport ([email protected]) and Bernard J. Ja-worski ([email protected]) are cofounders of Cam-bridge, Massachusetts–based Mar-ketspace, a unit of the Monitor Group, which focuses on the intersection of business strategy, technology, and me-dia. They are the authors of Best Face Forward (Harvard Business School Press, forthcoming), from which this ar-ticle was adapted.


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features, comparative strengths, and recom-mended uses—and thus the company’s abilityto serve customers effectively. As one managerput it, “No matter how smart [our store clerks]are, they can’t keep 45,000 pages of information[in their heads].” Supermarkets like Kroger havegone a different route with self-checkout sta-tions. U-Scan and Fast Lane installations, whichcost about $100,000 for a four-lane setup, givecustomers a faster checkout option; they alsosave the grocer money (because all four lanesare under the watchful eye of just one humancashier). Rite Aid is trying to achieve the samekind of leverage for its pharmacists, especially inlight of a foreseeable workload crisis. Prescrip-tion orders are expected to rise at least 26% be-tween 2001 and 2005, while the number ofavailable pharmacists in the workforce will in-crease by less than 4%. So Rite Aid is experi-menting with voice response units to processphone orders and robots to dispense medica-tions, enabling its pharmacists to concentrateon developing higher quality relationshipswith customers.

The Four Dimensions of an InterfaceA service interface is any place at which a com-pany seeks to manage a relationship with a cus-tomer, whether through people, technology, orsome combination of the two. Be it human ormachine, every service interface must deliverhigh levels of customer-perceived value relativeto the competition, so that customer satisfac-tion and loyalty rise sufficiently to drive supe-rior financial returns. To deliver that level ofvalue, an interface must succeed along four dif-ferent dimensions: physical presence and ap-pearance, cognition, emotion or attitude, andconnectedness. At the Four Seasons Hotel,the appearance of frontline staff—uniformed,clean-cut, businesslike, courteous, individual,and authentic—is a physical differentiation. AtNordstrom, the average salesperson’s ability torecognize and reward the store’s best customerswith appropriate service and attention is a cog-nitive advantage. The sense of humor and en-ergy that Southwest’s flight crews display addvalue on an emotional dimension. And the co-ordinating communications that allow the FourSeasons’ staff to orchestrate a seamless hospi-tality experience, that enable Nordstrom’ssalespeople to transfer customers gracefullyfrom one department to the next, and thatmake it possible for Southwest’s crews to work

as a team in flight are forms of connectednessthat make a difference.

As you work to reengineer your front office,your goals should be to bring your various, pro-liferating customer interfaces into a coherent,optimized system, while ensuring that each in-terface, through the right use of people, ma-chines, or a combination of both, succeeds onall of these dimensions. This is not simply avariation on the old theme of “high tech/hightouch” in which number crunching and otherrote tasks are automated to free up humans tomake deeper customer connections. That di-chotomy is no longer valid; now high-tech andhigh-touch can and do go hand in hand, withmachines in some situations outperforminghuman workers in creating high-touch experi-ences for customers.

The Front-Office RevolutionWhen Tom Davenport and Michael Hammer(in separate articles) defined the concept of re-engineering back in 1990, what they were urgingus to do was rethink the design of operationsin light of new IT capabilities. Too often theysaw managers using computers to automateexisting processes and roles in order to getwork done incrementally faster. Greater gains,they showed, would come from focusing onthe strengths of emerging and evolving tech-nologies and radically redesigning businessprocesses and roles to exploit them.

Front-office reengineering does exactly that.It uses new forms of technology to change theshape of customer interaction and relationshipmanagement functions. At the same time, itgoes well beyond the first reengineering move-ment’s aim to make a company “easier to dobusiness with” through improvements in inter-nal organizational processes. The focus now ison such arrestingly human concerns as the per-sonal, aesthetic, and emotional attributes ofcustomer interactions—none of which waseven contemplated by reengineering as it wasoriginally conceived. In its most thoroughform, front-office reengineering subjects everycurrent and potential service interface to ananalysis of opportunities for substitution(deploying machines instead of people), com-plementarity (deploying combinations of ma-chines and people), and displacement (usingnetworks to shift physical locations of peopleand machines) with the twin objectives ofcompressing costs and driving top-line growth


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through increased customer-perceived value.In the subsections that follow, we offer the out-lines of a front-office reengineering project,with some of the considerations that shouldinform each step.

Understand the desired customer experi-ence. Customers in different situations wantdifferent things from an interface: informa-tion, advice, social exchange, affirmation, an-onymity, discretion, and sometimes simply effi-ciency. The best starting point for front-officereengineering is an analytic understanding ofthe needs and desires of all segments of yourcustomers, taking into account purchase occa-sions as well as competitive offerings. First,envision the appropriate customer experi-ences; then you can work backward to the in-teractions and relationships that shape thoseexperiences and ultimately to the configura-tion of the customer interfaces that will suc-cessfully mediate those relationships.

It’s important to understand that this is notcustomer relationship management as thefield of CRM has defined it. CRM is commonlyused to refer to large-scale enterprise softwaresystems designed to manage customer infor-mation for sales and service. What we’re talk-ing about is more comprehensive—everythinga company does to interact with, or relate to,the customers and markets that its strategyaims to serve.

Depending on the customer and the pur-chase occasion, what constitutes an appropriateexperience may vary dramatically. We person-ally discovered this when we undertook somefield research by working an evening shift at aBoston-area McDonald’s. Customers who cameto the drive-through had no interest in relatingto a human being (much as we tried greetingthem exuberantly as they drove up). Rather,they wanted an efficient transaction that metcertain functional criteria, like speed, accuracy,and responsiveness. But walk-in customerswanted to relate to the real person behind thecounter. (One apparent regular, a middle-agedman who looked as if he had spent too manyyears at high-tech start-ups, came in late. Heeyed us suspiciously, placed his order hesi-tantly, then declared, “Something here is notnormal.…It looks as if this McDonald’s wastaken over by Genuity!”)

We learned a profound lesson here aboutpersonalization. Managers often believe thatpersonalization only means affecting greater

familiarity with a customer (“Hi, I’m Bob. I’llbe your waiter today!”). But personalizationshould really be about custom-fitting serviceinteractions to individual customers’ prefer-ences and even to individuals’ varying needs invarying circumstances. One customer filling aprescription at a pharmacy counter mightneed some hand-holding by the pharmacist;another might want nothing more than pri-vacy through anonymity. An astute pharmacistwould provide “personalized” service by treat-ing the first customer with warmth and concernand the second with reserve and efficiency. (In-deed, the first and second customer interac-tions may be with the same person on differentdays, dealing with different ailments.) We callthis the personalization paradox—the notionthat a personalized interaction or relationshipmay be one that is coldly impersonal.

The personalization paradox was no doubtthe impetus behind Shop 2000, an experimen-tal, fully automated vending machine that en-abled customers to help themselves to typicalconvenience store items—even milk and eggs.Mind you, this wasn’t introduced in a toughneighborhood in which the concern was forclerk safety. It was located in the fashionableAdams Morgan neighborhood of Washington,DC. But many of the machine’s customers per-ceived it to be more accurate and reliable in ex-ecuting transactions than a typical conveniencestore clerk—and refreshingly free of attitude.One commented, “A guy in the store can makea mistake or give you a hard time, but not themachine. I definitely prefer the machine.”

Once you’ve understood what your cus-tomer requires from an interaction, you’ll needto focus on what you, as a seller, want to gainfrom it—and how you might align your peopleand processes to deliver on those customer de-sires in a profitable manner. You might see thecustomer interaction as a chance to cross sellor up sell another offering, for example. Youmight want to use the opportunity to get feed-back or do market research. It’s vital to factorin these functions and to ensure they are giventhe right priority by the interface you deploy.

The experience of Sears offers a lesson here.In the 1990s, after divesting itself of its pio-neering catalog operations and the DiscoverCard business, Sears chose to focus on deliver-ing a differentiated customer experience in itsbrick-and-mortar stores. At one point in itsmuch-publicized “turnaround” in the late


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1990s, managers surveyed the company’s re-tail workforce, some 300,000 frontline employ-ees, to assess their grasp of the business andtheir role in its success. The stunning findingwas that most employees reported that theywere paid “to protect the assets of the com-pany” from its customers. That response waswrongheaded; the whole point of displayinggoods on a sales floor is to allow customers tointeract with them. It was also wrong hearted;retailers can’t succeed when their employeesview the customer as the enemy.

Understand the potential of technology. Atthe same time that you’re outlining what yourinterface system needs to accomplish, it’s im-portant to understand the current capabilitiesof technology. As in traditional reengineering,evolving technology drives efficiency, certainly—but the key to front-office reengineering is therealization that today’s technology is also capa-ble of taking on new and unprecedented roleswith respect to managing interactions and rela-tionships. Interestingly, our analysis of customer-facing technologies shows they are evolving rap-idly along four lines—neatly mapped to the fourdimensions of a successful interface. (See the ex-hibit “Interfacing with Machines.”) We are see-ing the proliferation of smart devices, the risingintelligence and interactivity of those devices,their increasing capacity to appeal on emotionallevels, and the synaptic connectivity that links suchdevices to other devices and networks.

We are already at the point that, in manyservice contexts, a machine may be able to out-perform a human along any one of these lines.Amazon’s Web site is a good example. Physi-cally, it is as nearby as your desktop. Its graphicdesign presents a clean and accessible image,attentively, but not aggressively, awaiting yourinstructions. Its cognitive strengths are evengreater. Unlike the typical person working in ashop, it has encyclopedic knowledge of itsenormous stock, a seemingly perfect recollec-tion for what you have purchased in the past,and the ability to make often well-informedrecommendations. Even on an emotional levelthe site succeeds, with cheerful greetings andopinionated reviews. Perhaps more important,it’s never in a bad mood, never short with dith-ering or demanding customers. And the site’suser community provides a rich sense of con-nectivity. As you consider a purchase, you cantap into other buyers’ experiences to guideyou. If it’s a rare book you seek, the site checks

Interfacing with Machines

Any good customer interface succeeds along four different dimensions—

the physical, the cognitive, the emotional, and the synaptic. When machines

can excel with respect to several of these simultaneously, the opportunity to

reengineer the interface becomes an imperative.

Dimension

Physical

On the scene in sufficient

numbers; presentable in

appearance

Cognitive

Able to recognize patterns,

draw intelligent conclusions,

and communicate articulately

Emotional

Respectful; attentive; display-

ing brand-consistent personal-

ity attributes; emotionally

calibrated with the customer

Synaptic

Well-connected to other

resources important to the

customer’s experience

How Machines Are Making Inroads

Ubiquity and pervasiveness of appealing,

intelligent devices

Look around: Everywhere you’ll see mobile

phones, BlackBerrys, Palm devices, Pocket

PC–based devices, MP3 players, high-tech

wristwatches, and ever smaller and more

powerful laptops.

Exponentially increasing processing

power

Intel says it’s on track to double processing

power every two years through 2011. New

transistor insulators, such as strontium

titanate, may sustain that momentum

even longer.

Greater affective appeal to humans

A creature called Kizmet at the MIT Media Lab

can read facial expressions through visual sen-

sors, listen to words, and respond with facial

expressions of its own in socially appropriate

and emotionally valid ways.

Near ubiquitous global connectivity

of information networks

High-speed broadband connectivity now exists

in 70% of South Korean homes, resulting in

a market where just about every device is eas-

ily connected by wire or wirelessly to every

other. TiVo maintains periodic connectivity

with its corporate servers, reporting consumer

usage data, updating billing information, and

generating programming recommendations. Copy

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with every used book dealer in its virtual town(the so-called zShops).

It isn’t only in online contexts that machineshold advantages. Think about the very unvir-tual experience of travel, which is being trans-formed by a variety of self-service technologies.Delta—like nearly every other major airline—now allows customers to bypass the line at thecounter and check in through ticketing kiosks;and, at United, you can do this in multiple lan-guages, including English, French, and Span-ish. Hertz allows gold-card members to pick uptheir assigned cars without a service represen-tative’s assistance. And if they need directions,

customers can use NeverLost navigation sys-tems in the cars to guide them while driving orkiosks at the Hertz stations to request andprint them. The hotel chain Club Quarters en-ables members to check themselves in and outthrough an ATM-like machine in the lobby; itgenerates room keys and billing statements.Hilton, Sheraton, and Marriott are also install-ing kiosks to perform similar functions acrosstheir expansive chains to check guests in andout, upgrade rooms, leave messages for otherguests, and, through partnerships with airlines,print boarding passes. And ATMs allow you toget local currency in most any city. A Wall

Touchy SubjectsAt the dawn of industrial automation more than a century ago, it became the goal of many managers to train factory workers to be-have like machines. Getting employees on the plant floor to adapt their actions to the tech-nologies of industrial production was the key to making lines run faster. Time-and-motion studies became the driver of a new frontier of industrial productivity.

Today, competition is arguably based far more on the quality of customer interactions with companies than on the efficiency of com-panies’ processes. So as we move machines into frontline roles, we now must train ma-chines to act more like people.

According to computer scientist Hans Moravec, the evolution of machine intelli-gence can be thought of in biological terms. Today’s lawn-mowing and vacuuming robots belong to what he considers the first genera-tion of development. They can perform simple tasks, but they can’t adapt to changing circum-stances. Within a decade, a second-generation robot with the cognitive capacity of a mouse will respond to positive and negative rein-forcement within predefined circumstances, allowing it to improve its performance sub-stantially over time. By 2040, Moravec ex-pects third-generation robots with monkey-like intelligence to be capable of learning quickly from “mental rehearsals” involving simulations of physical, cultural, and psycho-logical factors. In other words, such machines will have a primitive kind of conscious-ness. Through exposure to simulations of

everyday situations, the robots will be trained to operate in the world and can then be re-tuned to stay “faithful to reality.” By 2050, Moravec foresees fourth-generation “univer-sal robots” that can “abstract and generalize [and] become intellectually formidable.”

What’s interesting is that, even though we are today living only in the first generation, with glimpses of the second, it is clear that machines are already eliciting emotional re-sponses in humans once reserved for other people or household pets. As well as being able to tell one person from another (and re-spond to them differently), AIBO, Sony’s “en-tertainment robot” that resembles a small dog, develops its own unique personality. The product is endowed with 16,000 latent person-ality attributes, which are activated, or not, through interactions with its owner. As a re-sult, many owners reportedly develop a con-viction that AIBO is alive. They give their AIBOs names and refer to them not as “it” but as he or she. They talk about them not as “ro-bots” or “toys” but as dogs or other pets and take them to AIBO clinics, AIBO birthday par-ties, and AIBO soccer matches. This is a level of emotional attachment that does not nor-mally accrue to, say, a microwave oven or a digital camera.

TiVo, the system that allows people to digi-tally record favorite television shows and skip over the ads on playback, elicits other emo-tionally charged responses. Because the ma-chine learns enough from past viewing selec-tions to make program recommendations,

there have been reports of people being con-cerned about “what my TiVo thinks of me”—and purposely viewing or storing content to alter its opinion of them.

We can only speculate on the emotional bonds that will develop once Mitsubishi Heavy Industries puts its new household robot Waka-maru on the market (expected this year). De-signed to provide companionship for older people, it recognizes individual faces and 10,000 spoken words, conveys news from the Internet, and engages in prolonged conversa-tions. Perhaps even more advanced, Toyota’s “partner robot” features lips designed to “move with the same finesse as human lips” (as its Web site announces).

Robotics is just one stream of technology that marries high-tech with high-touch. It promises to radically alter the organiza-tional models for how companies serve their customers—and to transform the enterprise economics of companies. Just as business was incredulous that steam-powered turbines could drive textile mills in the late nineteenth century at lower costs with higher-quality out-put, many today are unconvinced that ma-chines can manage customer interactions and relationships in credible, customer-satisfy-ing, and loyalty-inducing ways. But it’s a fact that machines are beginning, for better or worse, to play or restructure such roles and are encroaching on a sacred precinct of human activity.


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Street Journal piece summed up the trend:“How to Have a Pleasant Trip: EliminateHuman Contact.”

As such innovations steadily emerge tomake our lives easier, it may not be obvioushow revolutionary they are. The display tech-nology itself is only part of the story. Never be-fore have so many large-scale enterprisesacross so many industry sectors possessed thetechnological infrastructures or networks todeploy front-office machines like these. Theseresources are the result of decades of sus-tained investment in information technologyin major corporations. Increasingly ubiqui-tous networks and technology diffusion linkthose corporations to consumers. And, as wediscuss in the sidebar “Touchy Subjects,” thenew front-office machines are making inroadsin even that most human of attributes—emotional connection.

Match the interface type to the task. De-pending on the kinds of interaction called for,a particular service interface might preferablybe people-dominant, machine-dominant, or ahybrid of the two. Which type of interface touse at each given touch point is a strategicchoice that has related costs and customer out-comes. A waiter in a restaurant, for example,constitutes a people-dominant service inter-face (even if supported by computerized or-dering systems). A vending machine or a Website is a machine-dominant service interface(even if supported by people for maintenanceand development). Call centers, which arestaffed by people who cannot perform theirjobs without access to database systems, arehybrid service interfaces. Deciding which ofthese interface types will allow you to bestmanage customer interactions and relation-ships is, first, a matter of determining whatpeople do best and what machines do best—the new division of labor.

The idea that people and machines bringdifferent performance capabilities to the laborforce has emerged in recent years as a focus ofacademic inquiry. MIT professor Erik Brynjolf-sson, for instance, has proposed a preliminarycatalog of human and machine strengths,where humans excel in “judgment, pattern rec-ognition, exception processing, insight, andcreativity” and machines excel in “collecting,storing, transmitting, and routine processing.”Certainly this division of labor holds at majorairports, where e-ticketing machines enable

customers to purchase tickets, check them-selves in on flights, and in some cases selecttheir seat assignments—leaving the few re-maining humans behind the counter to man-age complex or problematic ticketing situa-tions, communicate about delayed or canceledflights, and conduct security screening. But thisrepresents a fairly traditional—and thereforelimited—view of what machines can crediblyand capably do.

The right combination of people and ma-chines leverages the strengths of each. It alsorecognizes their weaknesses. People may begood at conveying empathy and handling ex-ceptions, but they are challenging to manageand costly to deploy and train. Machines maybe excellently suited to processing informa-tion and performing rote tasks, but they candepersonalize or homogenize interactions. Ineffect, the front office needs machines to com-pensate for people’s shortcomings and peopleto compensate for machines’.

Relative costs, of course, must be consideredin the optimal allocation of effort betweenpeople and machines. For example, it may beimpossible for machines to beat skilled financialadvisers at everything they do. But CharlesSchwab was still wise to spend $20 million cre-ating Schwab Equity Ratings, an automatedonline service that provides buy and sell recom-mendations for roughly 3,000 equities. Its stockpicks are not necessarily better than those madeby investment professionals, but they are ofcomparable quality. More to the point, thesystem conserves the energy of the organiza-tion’s scarcest, least scalable asset—its skilledand empathetic people—so it can be appliedwhere distinctly human capabilities and pres-ence count most.

Trends in labor and technology costs suggestthat machines will continue to encroach onthe frontline territory now held by humans.Right now, for example, it costs companies$9.50 on average to respond in person to a tele-phone inquiry from a customer. Addressingthe same customer live by e-mail costs $9.00.Meeting the customer’s needs through onlinetext chat, where one representative can handleseveral customers at once, costs $5.00. Han-dling the interaction using e-mail by a live per-son with automated assists or macros costs$2.50. And if the interaction is fully auto-mated, the savings are even more dramatic. Aninteractive voice response unit can handle the


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inquiry for just $1.10 if it does not default to ahuman being; a Web site can handle it for$0.50; and an automated e-mail response unit,if suitable, can handle it for just $0.25. Whenyou consider that the world’s call centers werehandling 26 billion call minutes a month bymid-2003—with projections of 35 billion callminutes a month by 2007—it’s hard to overes-timate the economic impact of this kind offront-office automation.

To the extent that we see robotics on thefront line, its potential is even greater. Accordingto World Robotics 2003, a report by the Interna-

tional Federation of Robotics and the UnitedNations, if you index the price of robots and thecost of human labor with 1990 as the baseline,the robot price index has decreased from 100 to36.9 (or to 18.5 if you adjust for the higher per-formance quality of today’s robots) while theindex for human labor compensation has risenfrom 100 to over 151. What does all this mean?Simply that people-dominant interfaces, whichhave long prevailed in traditional frontline ser-vices, are no longer the only or obvious choiceat every point of connection between compa-nies and their customers. As technology contin-

I’ve Never Seen Them, but I Believe They ExistFirst Direct is the pioneering direct bank that has amassed arguably the world’s most loyal banking customers by effectively deploying one of the most satisfying service interfaces in the financial services sector. Headquar-tered in Leeds, the company began in 1989 as a wholly owned subsidiary of Midland Bank, then one of the Big Four national banks in the United Kingdom. Midland Bank had never been a market leader in terms of cus-tomer service; in fact, surveys showed it was the most-hated bank in England. It had only a small segment of extremely satisfied account holders alongside more than 10 million dis-satisfied ones. And why were these few hun-dred thousand souls so satisfied? Because they never entered a branch.

These individuals had pieced together their own interface systems in interacting with Mid-land Bank, combining telephone, ATM, and Royal Mail. Most met with their branch man-ager only when they had problems. Otherwise, they used remote channels. Predictably, this segment was younger, better educated, more technologically savvy, and concentrated dis-proportionately in professional jobs, with sig-nificantly better earning prospects than the general population. These account holders did not maintain the highest bank balances, but they also did not require a great deal of atten-tion. In terms of customer lifetime value, this segment was without question among the most profitable.

Thus, First Direct was born—before any other bank in the world had attempted to op-

erate without a brick-and-mortar, branch-based model. The bank cultivated a new kind of employee, called the “banking representa-tive” (BR), to deal with customers exclusively over the phone. BRs were people who had cer-tain “life skills” but had never worked in any of the Big Four banks. The recruits, mostly women taking a few years off from their ca-reers as lawyers, accountants, and business managers to care for children, needed jobs with flexible hours.

Each BR was equipped with a PC worksta-tion that could access the bank’s customer in-formation systems, which provided three lev-els of information on account holders. They tracked customers’ identity data—name, ad-dress, phone number, age, and income; how they came to the bank; and when they opened their account. They also tracked histories of customer accounts, such as deposits, with-drawals, transfers, changes of job or address, and past purchases of banking products or ser-vices. Though most banks viewed such histo-ries as transactional, First Direct considered them behavioral, a source of insight into cus-tomers’ future needs and desires. And the sys-tems collected emotional data, such as a BR’s observations of a customer’s moods, personal-ity, and disposition, which enabled other BRs to interact with the callers according to each customer’s preferences and individual style. At the start of each call from a returning cus-tomer, the system signaled not only what to discuss but also how to discuss it.

First Direct provided no means of face-to-

face interaction between employees and cus-tomers, and it acknowledged its abstract na-ture in several early TV spots. (In one TV com-mercial, an articulate, elegant man sat near a fireplace sipping tea; after a few seconds, he looked up at the camera and, as if sharing a revelation, said, “I’ve never seen the people at First Direct, but I believe—I believe!—they exist.”) Also, unlike other direct-banking firms, First Direct did not assign specific BRs to par-ticular customers. In fact, its capacity to pro-vide personal service on demand depended on routing incoming calls to any of hundreds of BRs regardless of who had handled prior in-teractions. No customer would be likely to speak to the same BR twice in the course of a typical multiyear banking relationship. Yet, when we asked customers to describe their dealings with First Direct, many claimed it was the most personal relationship they had ever had with a financial institution—or, for that matter, with any large business.

By the early 1990s, First Direct was the United Kingdom’s fastest-growing bank and the only one with significant brand equity. It had achieved customer satisfaction rates above 90% and nearly perfect levels of ac-count retention. It went on to qualify at the top of the UK banking industry’s customer sat-isfaction rankings for twelve years (and count-ing), starting in 1991. When accounts were closed, it tended to be for one of two reasons. Either the account holder was moving out of the United Kingdom (the bank’s only market) or that person had died.


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ues to evolve and customers become morecomfortable with it, machine-dominant inter-faces will inevitably become more prominenton the front lines of many businesses, and ca-pable people—because of their increasing scar-city and cost—will inevitably ascend to higherorder roles and responsibilities.

Put work in its (right) place. If you think, toborrow from Tip O’Neill, that all service is local,you may need to think again. Reengineeringthe front office also involves choices betweenperforming services proximally (in stores, forexample) or remotely (through network con-nections to customers or operations off-site).

Think, for example, about utility meter read-ing, which is now commonly done over wirelessnetworks. The meters report directly to utilitycompanies on power usage, making it unneces-sary for employees to drive from house to houseand collect the information manually. It’s one ofthe better known examples of network-basedmachine-to-machine communication, but tensof millions of other devices substitute for peoplein similar ways. One company, BioLab, is evenusing remote machines to supervise the work ofpeople. A supplier of swimming pool chemicals,BioLab has developed a system of remote sen-sors to keep watch over the water quality of itsclients’ pools. The sensors send data across thecellular network to the company, and if theyreport a chemical imbalance, the company’s sys-tem calls or pages the client’s designated main-tenance person. If that person takes no action,the system contacts the next person up thechain of command (the maintenance person’sboss) until the problem is resolved.

Remote work can, of course, also be per-formed by remote humans. One of the moststriking examples we’ve encountered is in staff-ing for fast food drive-through windows. Froman operating perspective, this fix is long over-due. Drive-through clerks in restaurants are sta-tioned amid noisy food service facilities, and anindustry survey recently revealed that, on aver-age, more than half of the orders they take arerecorded incorrectly. So why not place thesedrive-through operators in a remote, centralizedcall center so that they can manage order-takingfor several restaurants at once? That’s exactlywhat some franchises are now piloting. Today,you can use the drive-through at a McDonald’sin Missouri and place an order with a call centerclerk in Colorado—nearly a thousand milesaway. Increasingly, we will see companies lean-

ing toward such distant gratification. (For a bestpractice example, see the sidebar “I’ve NeverSeen Them, but I Believe They Exist.”)

Pushing front-office work offshore has obvi-ous, if politically divisive, allure. Bank of Amer-ica has said it can perform work that costs $100an hour in the United States for $20 an hour inIndia. At one Indian call center, operated bySpectramind (a unit of the giant Indian sys-tems integrator Wipro), a highly skilled cus-tomer service representative with a collegedegree earns an annual income of $3,710,nearly an order of magnitude less than thegoing rate in the United States. By early 2003,Spectramind employed 4,000 people, many ofwhom received voice and accent training towork effectively with North American con-sumers, while working in call centers that sur-rounded them physically with the arcana ofAmerican popular sports and music culture.

Obviously there are cost-compression bene-fits. But the larger issue here is that ubiquitousnetworks and proliferating devices create newstrategic choices for managers. Making thechoices correctly depends on understandingwhat people and machines can do separatelyand together, whether they should be physi-cally proximal to or can be remote from thecustomer interaction, and then determiningwhat attributes (in cost and customer out-comes) deserve what levels of relative priority.

Optimize performance across the system.An important challenge in front-office reengi-neering is not only optimizing interfaces indi-vidually but also optimizing them, in concert,as a system. You could argue that some of yourcustomers don’t require such optimization,because they access your products or servicesthrough only one or two touch points or chan-nels. While that’s true, a preponderance of ev-idence suggests that such customers are theleast valuable to your business. Multichannelcustomers—who interact or shop across multi-ple interfaces—are most engaged with com-pany brands, spend more on the brands, andare the drivers of growth in revenues and prof-itability. (Recent retailing data suggest thatcustomers using three or more channels—such as store, catalog, and online—spend fourtimes as much as single-channel customers,and they represent the most rapidly changingaspect of consumer retail behavior.) Interfacesystems must be optimized in order to capital-ize on the economic potential of these cus-

Remote work can, of

course, be performed by

remote humans.

Increasingly, we will see

companies leaning

toward such distant

gratification.


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tomers. To do so, we advise managers to focuson this sequence of activities: separate, relate,and integrate. In the separate phase, compa-nies should focus on reengineering individualinterfaces to improve their performance whilelowering operational cost wherever feasible.This phase focuses on individual interface per-formance: How effective is a customer servicerepresentative in a call center, a sales clerk in aretail store, a Web site online?

In the relate phase, companies should deter-mine what the “anchor” interfaces in the cus-tomer experience are based on observation ofcustomer usage and how customers’ buyingprocesses will flow from those points across thesystem. In every interface system, some inter-faces matter more than others. Customers mayuse one with great frequency but use anotherone for longer durations. These interfacesmust receive management’s highest priorityfor attention and resources. Similarly, in everyinterface system, customers can flow down oneor more logical paths, based on how customersinteract in the relevant buying processes. Acompany cannot optimize an interface systemwithout understanding anchor interfaces andcustomer flows. For example, managers at TV-shopping network QVC know that the tele-vised broadcast is their anchor interface andthat customer traffic largely flows along a dom-inant pathway through the system—from thebroadcast to the phone, voice response unit, oronline site, and then to order placement andfulfillment. But they also know that shoppersare increasingly using the Web as the anchorinterface (for example, while they’re at workand don’t have access to a television) and orderonline, never watching the broadcast or access-ing the call centers. This is the case in SouthKorea, where high-speed broadband penetra-tion of Korean homes has made the Web theanchor interface (enhanced by streamingvideo) ahead of the broadcast. Once a com-pany has identified the dominant pathwaysthrough the buying process of its most profit-able customers, it should optimize its interfacesystem to handle those flows best, since theyrepresent the highest priorities from a businessperformance perspective.

In the integrate phase, managers mustfocus on meshing interfaces and linkages tomaximize effectiveness. That requires closingperformance gaps—pain points (aspects ofconnection, either interfaces or linkages

among interfaces within the system, that dis-satisfy customers in the buying process), chokepoints (points that confuse or impede custom-ers in the buying process), and drop-off points(points that result, through pain or confusion,in customer defections from the buyingprocess)—while amplifying operational effi-ciencies. Here, it’s useful to keep in mind thewisdom of Albert Einstein and make every-thing as simple as possible, but not simpler. In-terface systems have a natural tendency togrow more complex over time. Many compa-nies either add interfaces or elaborate on exist-ing ones in response to customer demand andtheir own opportunities for innovation. Buthaving too many interfaces in a system is asdeleterious to the quality of a company’s cus-tomer interactions as too few.

About FaceAs the focus of competition shifts from whatcompanies do to how they do it, the new frontierof competitive advantage lies in the quality ofinteractions and relationships companies canestablish with their customers and markets. Soit is indeed fortunate that frontline service isundergoing a revolution of its own. Advancesin service technology have opened up newpossibilities for how companies can createvalue not only through improvements in pro-ductivity but through better interactions withtheir customers.

Now with both motive and means, businessesmust change fast to embrace these new realities.Reengineering the front office will eliminateand displace many jobs, but it will also inevita-bly create new opportunities for human labor.Getting the balance right will require businessleaders to develop a subtle understanding ofhow to manage the intelligent division of laborbetween people and machines. A company’s in-terface system works best when it combines thebest of what people and machines can do. Thistask of managing interfaces and interface sys-tems will prove to be a strategic imperative—perhaps the strategic imperative for many com-panies. Those who crack the code of interfacesystems will own the competitive future.

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page 26

Further ReadingC O L L E C T I O NCRM—the Right Way, 3rd Editionby Darrell K. Rigby, Dianne Ledingham, Frederick F. Reichheld, Phil Schefter, Susan Fournier, Susan Dobscha, David Glen Mick, Kirthi Kalyanam, and Monte ZwebenHarvard Business Review OnPoint CollectionNovember 2005Product no. 2173

This collection focuses on the technology side of your customer interface system. Using customer relationship management (CRM) software, you can track individual customers’ interactions with your company and initiate responses tailored to those interactions. But CRM can backfire if you use it to stalk custom-ers. Instead, build systems that respond to customers when they want contact with you—for example, when they’re experiencing a major life change (such as a move, or the birth of a child) and could benefit from your company’s offerings. CRM technology also works best when you contact customers in ways they value—for example, to check their satisfaction or offer convenient ser-vices or information.

A R T I C L EMarketing Malpractice—The Cause and the Cureby Clayton M. Christensen, Scott Cook, and Taddy HallHarvard Business ReviewDecember 2005Product no. 2386

The best customer interface system won’t en-sure your customers’ loyalty if you haven’t de-signed your products with real people’s needs in mind. Instead of focusing your technology on defining statistically average customers or customer “segments,” use observation and in-terviewing to find out what jobs people want to get done. Then develop new or enhanced products or services that people want to “hire” to perform those jobs. For example, one fast-food restaurant discovered that many cus-tomers who bought shakes were harried com-muters who wanted to consume something quickly and easily while driving. This finding led to a new service idea: Move the shake-dispensing machine to the front of the counter and sell customers a prepaid swipe card, so they could dispense shakes them-selves and avoid the slow drive-through lane.


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3rd article from the collection: Supercharge Your Sales Force

page 27


by Philip Kotler, Neil Rackham, and

Suj Krishnaswamy

Included with this full-text Harvard Business Review article:



28 Article Summary

30 Ending the War Between Sales and Marketing



42 Further Reading

Product 1014




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In too many companies, Sales and Market-ing feud like Capulets and Montagues. Salespeople accuse marketers of being out of touch with what customers really want or setting prices too high. Marketers insist that salespeople focus too myopically on individual customers and short-term sales at the expense of longer-term profits.

Result? Poor coordination between the two teams—which only raises market-entry costs, lengthens sales cycles, and increases cost of sales.

How to get your sales and marketing teams to start working together? Kotler, Rackham, and Krishnaswamy recommend crafting a new relationship between them, one with the right degree of interconnection to tackle your most pressing business challenges.

For example, is your market becoming more commoditized or customized? If so, align Sales and Marketing through fre-quent, disciplined cross-functional commu-nication and joint projects. Is competition becoming more complex than ever? Then fully integrate the teams, by having them share performance metrics and rewards and embedding marketers deeply in man-agement of key accounts.

Create the right relationship between Sales and Marketing, and you reduce interne-cine squabbling, enabling these former combatants to boost top- and bottom-line growth, together.

How interconnected should your Sales and Marketing teams be? The authors recommend deter-mining their existing relationship, then strengthening interconnection if conditions warrant.

WHAT’S THE CURRENT RELATIONSHIP?

THE RELATIONSHIP IS… IF SALES AND MARKETING…

Undefined • Focus on their own tasks and agendas unless conflict arises between them.

• Have developed independently.

• Devote meetings between them to conflict resolution, not proactive collaboration.

Defined • Have rules for preventing disputes.

• Share a language for potentially contentious areas (e.g., defining a “lead”).

• Use meetings to clarify mutual expectations.

Aligned • Have clear but flexible boundaries: salespeople use marketing terminology; marketers participate in transactional sales.

• Engage in joint planning and training.

Integrated • Share systems, performance metrics, and rewards.

• Behave as if they’ll “rise or fall together.”


The Idea in Practice (continued)


SHOULD YOU CREATE MORE INTERCONNECTION?

Strengthening Sales/Marketing interconnection isn’t always necessary. For example, if your company is small and the teams operate indepen-dently while enjoying positive, informal relationships, don’t interfere. The table offers guidelines for companies that do need change.

IF THE CURRENT RELATIONSHIP IS... AND...

THEN MOVE THE RELATIONSHIP TO... BY...

Undefined • Sales and Marketing have frequent conflicts and compete over resources.

• Effort is duplicated, or tasks fall between the cracks.

Defined • Creating clear rules of engagement, including hand-off points for important tasks (such as lead follow-up).

Defined • The market is becoming commoditized or customized.

• Product life cycles are shortening.

• Despite clarified roles, efforts are still duplicated or tasks neglected.

Aligned • Establishing regular meetings between Sales and Marketing to discuss major opportunities and problems.

• Defining who should be consulted on which decisions (e.g., “Involve the brand manager in $2 million+ sales opportunities”).

• Creating opportunities for Sales and Marketing to collaborate—for example, planning a conference together or rotating jobs.

Aligned • The business landscape is marked by complexity and rapid change.

• Marketing has split into upstream (strategic) and downstream (tactical) groups.

Integrated • Having downstream marketers develop sales tools, help salespeople qualify leads, and use feedback from Sales to sell existing offerings to new market segments.

• Evaluating and rewarding both teams’ performance based on shared important metrics. For instance, establish a sales goal to which both teams commit. And define key sales metrics—such as number of new customers and closings—for salespeople and downstream marketers.



by Philip Kotler, Neil Rackham, and

Suj Krishnaswamy


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In many companies, sales forces and marketers feud like Capulets and

Montagues—with disastrous results. Here’s how to get them to lay

down their swords.

Product designers learned years ago thatthey’d save time and money if they consultedwith their colleagues in manufacturing ratherthan just throwing new designs over the wall.The two functions realized it wasn’t enough tojust coexist—not when they could work to-gether to create value for the company and forcustomers. You’d think that marketing andsales teams, whose work is also deeply inter-connected, would have discovered somethingsimilar. As a rule, though, they’re separatefunctions within an organization, and, whenthey do work together, they don’t always getalong. When sales are disappointing, Market-ing blames the sales force for its poor execu-tion of an otherwise brilliant rollout plan. Thesales team, in turn, claims that Marketing setsprices too high and uses too much of the bud-get, which instead should go toward hiringmore salespeople or paying the sales repshigher commissions. More broadly, sales de-partments tend to believe that marketers areout of touch with what’s really going on withcustomers. Marketing believes the sales force

is myopic—too focused on individual cus-tomer experiences, insufficiently aware ofthe larger market, and blind to the future. Inshort, each group often undervalues theother’s contributions.

This lack of alignment ends up hurting cor-porate performance. Time and again, duringresearch and consulting assignments, we’veseen both groups stumble (and the organiza-tion suffer) because they were out of sync.Conversely, there is no question that, whenSales and Marketing work well together, com-panies see substantial improvement on im-portant performance metrics: Sales cycles areshorter, market-entry costs go down, and thecost of sales is lower. That’s what happenedwhen IBM integrated its sales and marketinggroups to create a new function called Chan-nel Enablement. Before the groups were inte-grated, IBM senior executives Anil Menonand Dan Pelino told us, Sales and Marketingoperated independent of one another. Sales-people worried only about fulfilling productdemand, not creating it. Marketers failed to


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Philip Kotler is the S.C. Johnson & Son Distinguished Professor of International Marketing at Northwestern University’s Kellogg School of Management in Evan-ston, Illinois. This is his 11th article for HBR. Neil Rackham is a visiting profes-sor at the University of Portsmouth in England, the author of Spin Selling (McGraw-Hill, 1988), and a coauthor of Rethinking the Sales Force (McGraw-Hill, 1999). Suj Krishnaswamy ([email protected]) is the founder and a principal of Stinsights (www.stinsights.com), a Chicago-based business strate-gy and market research firm specializing in sales–marketing interface.

link advertising dollars spent to actual salesmade, so Sales obviously couldn’t see thevalue of marketing efforts. And, because thegroups were poorly coordinated, Market-ing’s new product announcements oftencame at a time when Sales was not preparedto capitalize on them.

Curious about this kind of disconnect be-tween Sales and Marketing, we conducted astudy to identify best practices that couldhelp enhance the joint performance and over-all contributions of these two functions. Weinterviewed pairs of chief marketing officersand sales vice presidents to capture their per-spectives. We looked in depth at the relation-ship between Sales and Marketing in a heavyequipment company, a materials company, afinancial services firm, a medical systems com-pany, an energy company, an insurance com-pany, two high-tech electronic products compa-nies, and an airline. Among our findings:

• The marketing function takes differentforms in different companies at differentproduct life-cycle stages—all of which candeeply affect the relationship between Salesand Marketing.

• The strains between Sales and Market-ing fall into two main categories: economicand cultural.

• It’s not difficult for companies to assessthe quality of the working relationship be-tween Sales and Marketing. (This article in-cludes a diagnostic tool for doing so.)

• Companies can take practical steps tomove the two functions into a more produc-tive relationship, once they’ve establishedwhere the groups are starting from.

Different Roles for MarketingBefore we look closely at the relationship be-tween the two groups, we need to recognizethat the nature of the marketing function var-ies significantly from company to company.

Most small businesses (and most businessesare small) don’t establish a formal marketinggroup at all. Their marketing ideas come frommanagers, the sales force, or an advertisingagency. Such businesses equate marketingwith selling; they don’t conceive of marketingas a broader way to position their firms.

Eventually, successful small businesses add amarketing person (or persons) to help relievethe sales force of some chores. These new staffmembers conduct research to calibrate the size

of the market, choose the best markets andchannels, and determine potential buyers’ mo-tives and influences. They work with outsideagencies on advertising and promotions. Theydevelop collateral materials to help the salesforce attract customers and close sales. And, fi-nally, they use direct mail, telemarketing, andtrade shows to find and qualify leads for thesales force. Both Sales and Marketing see themarketing group as an adjunct to the salesforce at this stage, and the relationship be-tween the functions is usually positive.

As companies become larger and moresuccessful, executives recognize that there ismore to marketing than setting the four P’s:product, pricing, place, and promotion. Theydetermine that effective marketing calls forpeople skilled in segmentation, targeting,and positioning. Once companies hire mar-keters with those skills, Marketing becomesan independent player. It also starts to com-pete with Sales for funding. While the salesmission has not changed, the marketing mis-sion has. Disagreements arise. Each functiontakes on tasks it believes the other should bedoing but isn’t. All too often, organizationsfind that they have a marketing function in-side Sales, and a sales function inside Mar-keting. At this stage, the salespeople wishthat the marketers would worry about fu-ture opportunities (long-term strategy) andleave the current opportunities (individualand group sales) to them.

Once the marketing group tackles higher-level tasks like segmentation, it starts towork more closely with other departments,particularly Strategic Planning, Product De-velopment, Finance, and Manufacturing.The company starts to think in terms of de-veloping brands rather than products, andbrand managers become powerful players inthe organization. The marketing group is nolonger a humble ancillary to the sales de-partment. It sets its sights much higher: Themarketers believe it’s essential to transformthe organization into a “marketing-led” com-pany. As they introduce this rhetoric, othersin the firm—including the sales group—question whether the marketers have thecompetencies, experience, and understand-ing to lead the organization.

While Marketing increases its influencewithin separate business units, it rarely be-comes a major force at the corporate level.


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There are exceptions: Citigroup, Coca-Cola,General Electric, IBM, and Microsoft eachhave a marketing head at the corporate level.And Marketing is more apt to drive companystrategy in major packaged-goods compa-nies such as General Mills, Kraft, and Procter& Gamble. Even then, though, during eco-nomic downturns, Marketing is more closelyquestioned—and its workforce more likely tobe cut—than Sales.

Why Can’t They Just Get Along?There are two sources of friction between Salesand Marketing. One is economic, and the otheris cultural. The economic friction is generatedby the need to divide the total budget grantedby senior management to support Sales andMarketing. In fact, the sales force is apt to criti-cize how Marketing spends money on three ofthe four P’s—pricing, promotion, and product.Take pricing. The marketing group is underpressure to achieve revenue goals and wantsthe sales force to “sell the price” as opposed to“selling through price.” The salespeople usuallyfavor lower prices because they can sell theproduct more easily and because low pricesgive them more room to negotiate. In addition,there are organizational tensions around pric-ing decisions. While Marketing is responsiblefor setting suggested retail or list prices and es-tablishing promotional pricing, Sales has thefinal say over transactional pricing. When spe-cial low pricing is required, Marketing fre-quently has no input. The vice president ofsales goes directly to the CFO. This does notmake the marketing group happy.

Promotion costs, too, are a source of friction.The marketing group needs to spend money togenerate customers’ awareness of, interest in,preference for, and desire for a product. Butthe sales force often views the large sums spenton promotion—particularly on television ad-vertising—as a waste of money. The VP ofsales tends to think that this money would bebetter spent increasing the size and quality of

the sales force.When marketers help set the other P, the

product being launched, salespeople oftencomplain that it lacks the features, style, orquality their customers want. That’s be-cause the sales group’s worldview is shapedby the needs of its individual customers.The marketing team, however, is con-cerned about releasing products whose fea-tures have broad appeal.

The budget for both groups also reflectswhich department wields more power withinthe organization, a significant factor. CEOstend to favor the sales group when settingbudgets. One chief executive told us, “Whyshould I invest in more marketing when I canget better results by hiring more salespeople?”CEOs often see sales as more tangible, withmore short-run impact. The sales group’s con-tributions to the bottom line are also easier tojudge than the marketers’ contributions.

The cultural conflict between Sales and Mar-keting is, if anything, even more entrenchedthan the economic conflict. This is true in partbecause the two functions attract differenttypes of people who spend their time in verydifferent ways. Marketers, who until recentlyhad more formal education than salespeople,are highly analytical, data oriented, andproject focused. They’re all about buildingcompetitive advantage for the future. Theyjudge their projects’ performance with a coldeye, and they’re ruthless with a failed initiative.However, that performance focus doesn’t al-ways look like action to their colleagues inSales because it all happens behind a deskrather than out in the field. Salespeople, incontrast, spend their time talking to existingand potential customers. They’re skilled rela-tionship builders; they’re not only savvy aboutcustomers’ willingness to buy but also attunedto which product features will fly and whichwill die. They want to keep moving. They’reused to rejection, and it doesn’t depress them.They live for closing a sale. It’s hardly surpris-

All too often,

organizations find that

they have a marketing

function inside Sales,

and a sales function

inside Marketing.

How Well Do Sales and Marketing Work Together?This instrument (see next page) is intended to help you gauge how well your sales and marketing groups are aligned and inte-grated. Ask your heads of Sales and Market-ing (as well as their staffs) to evaluate each of the following statements on a scale of 1

to 5, where 1 is “strongly disagree” and 5 is “strongly agree.” Tally the numbers, and use the scoring key to determine the kind of relationship Sales and Marketing have in your company. The higher the score, the more integrated the relationship. (Several

companies have found that their sales forces and their marketing staffs have sig-nificantly different perceptions about how well they work together—which in itself is quite interesting.)


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ylgnortS ylgnortSDisagree Disagree Neither Agree Agree

1 2 3 4 5

1. Our sales figures are usually close to the sales forecast.

2. If things go wrong, or results are disappointing, neitherfunction points fingers or blames the other.

3. Marketing people often meet with key customers duringthe sales process.

4. Marketing solicits participation from Sales in drafting themarketing plan.

5. Our salespeople believe the collateral supplied byMarketing is a valuable tool to help them get more sales.

6. The sales force willingly cooperates in supplyingfeedback requested by Marketing.

7. There is a great deal of common language here betweenSales and Marketing.

8. The heads of Sales and Marketing regularly confer aboutupstream issues such as idea generation, marketsensing, and product development strategy.

9. Sales and Marketing work closely together to definesegment buying behavior.

10. When Sales and Marketing meet, they do not need tospend much time on dispute resolution and crisismanagement.

11. The heads of Sales and Marketing work together onbusiness planning for products and services that will not be launched for two or more years.

12. We discuss and use common metrics for determining the success of Sales and Marketing.

13. Marketing actively participates in defining and executingthe sales strategy for individual key accounts.

14. Sales and Marketing manage their activities using jointlydeveloped business funnels, processes, or pipelines thatspan the business chain – from initial market sensing tocustomer service.

15. Marketing makes a significant contribution to analyzingdata from the sales funnel and using those data toimprove the predictability and effectiveness of the funnel.

16. Sales and Marketing share a strong “We rise or falltogether” culture.

17. Sales and Marketing report to a single chief customerofficer, chief revenue officer, or equivalent C-levelexecutive.

18. There’s significant interchange of people between Salesand Marketing.

19. Sales and Marketing jointly develop and deploy trainingprograms, events, and learning opportunities for theirrespective staffs.

20. Sales and Marketing actively participate in the preparationand presentation of each other’s plans to top executives.

+ + + + = TotalScoring20–39 Undefined 60–79 Aligned40–59 Defined 80–100 Integrated


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ing that these two groups of people find it diffi-cult to work well together.

If the organization doesn’t align incentivescarefully, the two groups also run into con-flicts about seemingly simple things—for in-stance, which products to focus on selling.Salespeople may push products with lowermargins that satisfy quota goals, while Market-ing wants them to sell products with higherprofit margins and more promising futures.More broadly speaking, the two groups’ per-formance is judged very differently. Salespeo-ple make a living by closing sales, full stop. It’s

easy to see who (and what) is successful—almost immediately. But the marketingbudget is devoted to programs, not people,and it takes much longer to know whether aprogram has helped to create long-term com-petitive advantage for the organization.

Four Types of RelationshipsGiven the potential economic and culturalconflicts, one would expect some strains todevelop between the two groups. And, in-deed, some level of dysfunction usually doesexist, even in cases where the heads of Sales

Do We Need to Be More Aligned?The nature of relations between Sales and Marketing in your organization can run the gamut—from undefined (the groups act in-dependent of one another) to integrated

(the groups share structures, systems, and rewards). Not every company will want to—or should—move from being undefined to being defined or from being defined to

being aligned. The following table can help you decide under which circumstances your company should more tightly integrate its sales and marketing functions.

Don’t make anychanges if…

Tighten the relationship between Sales and Marketing if…

The company is small.

The company has good informal relationships.

Marketing is still a sales support function.

Conflicts are evident betweenthe two functions.

There’s duplication of effortbetween the functions; ortasks are falling through thecracks.

The functions compete for resources or funding.

The company’s products and services are fairly cut-and-dried.

Traditional marketing andsales roles work in this market.

There’s no clear and compelling reason to change.

Even with careful definitionof roles, there’s duplication ofeffort between the functions;or tasks are falling throughthe cracks.

The market is commoditizedand makes a traditional salesforce costly.

Products are developed,prototyped, or extensivelycustomized during the salesprocess.

Product life cycles are short-ening, and technology turn-over is accelerating.

The company lacks a cultureof shared responsibility.

Sales and Marketing reportseparately.

The sales cycle is fairly short.

A common process or business funnel can be created for managing and measuring revenue-generating activities.

Undefined Defined Aligned

move to Defined move to Aligned move to Integrated


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and Marketing are friendly. The sales andmarketing departments in the companies westudied exhibit four types of relationships.The relationships change as the companies’marketing and sales functions mature—thegroups move from being unaligned (andoften conflicted) to being fully integrated(and usually conflict-free)—though we’veseen only a few cases where the two functionsare fully integrated.

Undefined. When the relationship is unde-fined, Sales and Marketing have grown inde-pendently; each is preoccupied largely with itsown tasks and agendas. Each group doesn’tknow much about what the other is up to—until a conflict arises. Meetings between thetwo, which are ad hoc, are likely to be de-voted to conflict resolution rather than pro-active cooperation.

Defined. In a defined relationship, the twogroups set up processes—and rules—to pre-vent disputes. There’s a “good fences makegood neighbors” orientation; the marketersand salespeople know who is supposed to dowhat, and they stick to their own tasks for themost part. The groups start to build a commonlanguage in potentially contentious areas,such as “How do we define a lead?” Meetingsbecome more reflective; people raise ques-tions like “What do we expect of one another?”The groups work together on large events likecustomer conferences and trade shows.

Aligned. When Sales and Marketing arealigned, clear boundaries between the two ex-ist, but they’re flexible. The groups engage injoint planning and training. The sales groupunderstands and uses marketing terminologysuch as “value proposition” and “brand image.”Marketers confer with salespeople on impor-tant accounts. They play a role in transac-tional, or commodity, sales as well.

Integrated. When Sales and Marketingare fully integrated, boundaries becomeblurred. Both groups redesign the relation-ship to share structures, systems, and re-wards. Marketing—and to a lesser degreeSales—begins to focus on strategic, forward-thinking types of tasks (market sensing, forinstance) and sometimes splits into upstreamand downstream groups. Marketers aredeeply embedded in the management of keyaccounts. The two groups develop and imple-ment shared metrics. Budgeting becomesmore flexible and less contentious. A “rise or

fall together” culture develops.We designed an assessment tool that can

help organizations gauge the relationshipbetween their sales and marketing depart-ments. (See the exhibit “How Well Do Salesand Marketing Work Together?”) We origi-nally developed this instrument to help usunderstand what we were seeing in our re-search, but the executives we were studyingquickly appropriated it for their own use.Without an objective tool of this kind, it’svery difficult for managers to judge their cul-tures and their working environments.

Moving UpOnce an organization understands the natureof the relationship between its marketingand sales groups, senior managers may wishto create a stronger alignment between thetwo. (It’s not always necessary, however. Theexhibit “Do We Need to Be More Aligned?”can help organizations decide whether tomake a change.)

Moving from undefined to defined. If thebusiness unit or company is small, membersof Sales and Marketing may enjoy good, in-formal relationships that needn’t be dis-turbed. This is especially true if Marketing’srole is primarily to support the sales force.However, senior managers should interveneif conflicts arise regularly. As we noted ear-lier, this generally happens because thegroups are competing for scarce resourcesand because their respective roles haven’tbeen clearly defined. At this stage, managersneed to create clear rules of engagement, in-cluding handoff points for important taskslike following up on sales leads.

Moving from defined to aligned. The de-fined state can be comfortable for both par-ties. “It may not be perfect,” one VP of salestold us, “but it’s a whole lot better than it was.”Staying at this level won’t work, though, ifyour industry is changing in significant ways.If the market is becoming commoditized, forexample, a traditional sales force may becomecostly. Or if the market is moving towardcustomization, the sales force will need toupgrade its skills. The heads of Sales andMarketing may want to build a more alignedrelationship and jointly add new skills. Tomove from a defined relationship to analigned one:

Encourage disciplined communication. When it

Marketers judge their

projects’ performance

with a cold eye. But that

performance focus

doesn’t always look like

action to their colleagues

in Sales.


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comes to improving relations between anytwo functions, the first step inevitably involvesimproving communication. But it’s not as sim-ple as just increasing communication betweentwo groups. More communication is expen-sive. It eats up time, and it prolongs decisionmaking. We advocate instead for more disci-plined communication. Hold regular meetingsbetween Sales and Marketing (at least quar-terly, perhaps bimonthly or monthly). Makesure that major opportunities, as well as anyproblems, are on the agenda. Focus the discus-sions on action items that will resolve prob-lems, and perhaps even create opportunities,by the next meeting. Salespeople and market-ers need to know when and with whom theyshould communicate. Companies should de-velop systematic processes and guidelinessuch as, “You should involve the brand man-ager whenever the sales opportunity is above

$2 million,” or “We will not go to print on anymarketing collateral until salespeople have re-viewed it,” or “Marketing will be invited to thetop ten critical account reviews.” Businessesalso need to establish an up-to-date, user-friendly “who to call” database. People getfrustrated—and they waste time—searchingin the wrong places for help.

Create joint assignments; rotate jobs. As yourfunctions become better aligned, it’s impor-tant to create opportunities for marketers andsalespeople to work together. This will makethem more familiar with each other’s ways ofthinking and acting. It’s useful for marketers,particularly brand managers and researchers,to occasionally go along on sales calls. Theyshould get involved with developing alternatesolutions for customers, early in the sales pro-cess. And they should also sit in on importantaccount-planning sessions. Salespeople, in

Sales and Marketing Integration ChecklistTo achieve integration between Sales and Marketing, your company needs to focus on the following tasks.

Integrate Activities

Integrate Processes and Systems

Enable the Culture

Integrate Organizational Structures

Jointly involve Sales andMarketing in productplanning and in settingsales targets.

Jointly involve Sales and Marketing in gener-ating value propositionsfor different market segments.

Jointly involve Sales andMarketing in assessingcustomer needs.

Jointly involve Sales andMarketing in signing offon advertising materials.

Jointly involve Sales andMarketing in analyzingthe top opportunities bysegment.

Implement systems totrack and manage Salesand Marketing’s joint activities.

Utilize and regularly up-date shared databases.

Establish common met-rics for evaluating theoverall success of Salesand Marketing efforts.

Create reward systemsto laud successful effortsby Sales and Marketing.

Mandate that teamsfrom Sales and Market-ing meet periodically to review and improverelations.

Require Sales and Mar-keting heads to attendeach other’s budget reviews with the CEO.

Emphasize shared responsibility for results between the different divisions of the organization.

Emphasize metrics.

Tie rewards to results.

Enforce divisions’ con-formity to systems andprocesses.

Split Marketing into upstream and down-stream teams.

Hire a chief revenue officer.


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turn, should help to develop marketing plansand should sit in on product-planning reviews.They should preview ad and sales-promotioncampaigns. They should share their deepknowledge about customers’ purchasing hab-its. Jointly, marketers and salespeople shouldgenerate a playbook for expanding businesswith the top ten accounts in each market seg-ment. They should also plan events and con-ferences together.

Appoint a liaison from Marketing to work withthe sales force. The liaison needs to be some-one both groups trust. He or she helps to re-solve conflicts and shares with each group thetacit knowledge from the other group. It’s im-portant not to micromanage the liaison’s ac-tivities. One of the Marketing respondents inour study described the liaison’s role this way:“This is a person who lives with the sales force.He goes to the staff meetings, he goes to theclient meetings, and he goes to the client strat-egy meetings. He doesn’t develop product; hecomes back and says, ‘Here’s what this marketneeds. Here’s what’s emerging,’ and then heworks hand in hand with the salesperson andthe key customer to develop products.”

Colocate marketers and salespeople. It’s an oldand simple truth that when people are physi-cally close, they will interact more often and

are more likely to work well together. Onebank we studied located its sales and market-ing functions in an empty shopping mall:Different groups and teams within Sales andMarketing were each allocated a storefront.Particularly in the early stages of moving func-tions toward a more closely aligned relation-ship, this kind of proximity is a big advantage.Most companies, though, centralize their mar-keting function, while the members of theirsales group remain geographically dispersed.Such organizations need to work harder to fa-cilitate communication between Sales andMarketing and to create shared work.

Improve sales force feedback. Marketers com-monly complain that salespeople are too busyto share their experiences, ideas, and insights.Indeed, very few salespeople have an incen-tive to spend their precious time sharing cus-tomer information with Marketing. They havequotas to reach, after all, and limited time inwhich to meet and sell to customers. To moreclosely align Sales and Marketing, senior man-agers need to ensure that the sales force’s ex-perience can be tapped with a minimum ofdisruption. For instance, Marketing can askthe Sales VP to summarize any sales force in-sights for the month or the quarter. Or Mar-keting can design shorter information forms,

The Buying FunnelThere’s a conventional view that Marketing should take re-sponsibility for the first four steps of the typical buying fun-nel—customer awareness, brand awareness, brand consider-ation, and brand preference. (The funnel reflects the ways that Marketing and Sales influence customers’ purchasing decisions.) Marketing builds brand preference, creates a marketing plan, and generates leads for sales before hand-ing off execution and follow-up tasks to Sales. This division of labor keeps Marketing focused on strategic activities and prevents the group from intruding in individual sales oppor-tunities. But if things do not go well, the blame game be-gins. Sales criticizes the plan for the brand, and Marketing accuses Sales of not working hard enough or smart enough.

The sales group is responsible for the last four steps of the funnel—purchase intention, purchase, customer loyalty, and customer advocacy. Sales usually develops its own funnel for the selling tasks that happen during the first two steps. (These include prospecting, defining needs, preparing and presenting proposals, negotiating contracts, and implementing the sale.) Apart from some lead generation in the prospecting stage, Marketing all too often plays no role in these tasks.

customerawareness

brandawareness

brandconsideration

brandpreference

purchaseintention

purchase

customerloyalty

customeradvocacy

MARKETING

Handoff

SALES


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review call reports and CRM data indepen-dently, or pay salespeople to make themselvesavailable to interviewers from the marketinggroup and to summarize what their sales col-leagues are thinking about.

Moving from aligned to integrated. Mostorganizations will function well when Salesand Marketing are aligned. This is especiallytrue if the sales cycle is relatively short, thesales process is fairly straightforward, andthe company doesn’t have a strong cultureof shared responsibility. In complicated orquickly changing situations, there are goodreasons to move Sales and Marketing into anintegrated relationship. (The exhibit “Salesand Marketing Integration Checklist” outlinesthe issues you’ll want to think through.) Thismeans integrating such straightforward activi-ties as planning, target setting, customer as-sessment, and value-proposition development.It’s tougher, though, to integrate the twogroups’ processes and systems; these must bereplaced with common processes, metrics, andreward systems. Organizations need to de-velop shared databases, as well as mechanismsfor continuous improvement. Hardest of all ischanging the culture to support integration.The best examples of integration we foundwere in companies that already emphasizedshared responsibility and disciplined plan-ning; that were metrics driven; that tied re-wards to results; and that were managedthrough systems and processes. To move froman aligned relationship to an integrated one:

Appoint a chief revenue (or customer) officer.The main rationale for integrating Sales andMarketing is that the two functions have acommon goal: the generation of profitableand increasing revenue. It is logical to putboth functions under one C-level executive.Companies such as Campbell’s Soup, Coca-Cola, and FedEx have a chief revenue officer(CRO) who is responsible for planning for anddelivering the revenue needed to meet corpo-rate objectives. The CRO needs control overthe forces affecting revenue—specifically,marketing, sales, service, and pricing. Thismanager could also be called the chief cus-tomer officer (CCO), a title used in such com-panies as Kellogg; Sears, Roebuck; and UnitedAir Lines. The CCO may be more of a cus-tomer ombudsman or customer advocate insome companies; but the title can also signalan executive’s broader responsibility for reve-

nue management.Define the steps in the marketing and sales fun-

nels. Sales and Marketing are responsible for asequence of activities and events (sometimescalled a funnel) that leads customers towardpurchases and, hopefully, ongoing relation-ships. Such funnels can be described from thecustomer’s perspective or from the seller’s per-spective. (A typical funnel based on the cus-tomer’s decision sequence is shown in the ex-hibit “The Buying Funnel.”) Marketing isusually responsible for the first few steps—building customers’ brand awareness andbrand preference, creating a marketing plan,and generating leads for sales. Then Sales exe-cutes the marketing plan and follows up onleads. This division of labor has merit. It is sim-ple, and it prevents Marketing from gettingtoo involved in individual sales opportunitiesat the expense of more strategic activities. Butthe handoff brings serious penalties. If thingsdo not go well, Sales can say that the plan wasweak, and Marketing can say that the sales-people did not work hard enough or smartenough. And in companies where Marketingmakes a handoff, marketers can lose touchwith active customers. Meanwhile, Sales usu-ally develops its own funnel describing the se-quence of selling tasks. Funnels of this kind—integrated into the CRM system and into salesforecasting and account-review processes—form an increasingly important backbone forsales management. Unfortunately, Marketingoften plays no role in these processes. Somecompanies in our study, however, have inte-grated Marketing into the sales funnel. Duringprospecting and qualifying, for instance, Mar-keting helps Sales to create common stan-dards for leads and opportunities. During theneeds-definition stage, Marketing helps Salesdevelop value propositions. In the solution-development phase, Marketing provides “so-lution collateral”—organized templates andcustomizing guides so salespeople can developsolutions for customers without constantlyhaving to reinvent the wheel. When custom-ers are nearing a decision, Marketing contrib-utes case study material, success stories, andsite visits to help address customers’ concerns.And during contract negotiations, Marketingadvises the sales team on planning and pric-ing. Of course, Marketing’s involvement in thesales funnel should be matched by Sales’ in-volvement in the upstream, strategic decisions


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the marketing group is making. Salespeopleshould work with the marketing and R&Dstaffs as they decide how to segment the mar-ket, which products to offer to which seg-ments, and how to position those products.

Split Marketing into two groups. There’s astrong case for splitting Marketing into up-stream (strategic) and downstream (tactical)groups. Downstream marketers develop ad-vertising and promotion campaigns, collateralmaterial, case histories, and sales tools. Theyhelp salespeople develop and qualify leads.The downstream team uses market researchand feedback from the sales reps to help sellexisting products in new market segments, tocreate new messages, and to design bettersales tools. Upstream marketers engage in cus-tomer sensing. That is, they monitor the voiceof the customer and develop a long view of thecompany’s business opportunities and threats.The upstream team shares its insights with se-nior managers and product developers—andit participates in product development.

Set shared revenue targets and reward sys-tems. The integrated organization will not suc-ceed unless Sales and Marketing share respon-sibility for revenue objectives. One marketingmanager told us, “I’m going to use whatevertools I need to make sure Sales is effective, be-cause, at the end of the day, I’m judged on thatsales target as well.” One of the barriers toshared objectives, however, is the thorny issueof shared rewards. Salespeople historicallywork on commission, and marketers don’t. Tosuccessfully integrate the two functions, man-agement will need to review the overall com-pensation policy.

Integrate Sales and Marketing metrics.The need for common metrics becomes criti-cal as Marketing becomes more embedded inthe sales process and as Sales plays a moreactive role in Marketing. “In order to be thecustomer-intimate company we are,” saysLarry Norman, president of Financial MarketsGroup, part of the Aegon USA operating com-panies, “we need to be metrics driven andhave metrics in place that track both sales andmarketing performance.” On a macro level,companies like General Electric have “thenumber”—the sales goal to which both Salesand Marketing commit. There is no escapingthe fact that, however well integrated Salesand Marketing are, the company will alsowant to develop metrics to measure and re-

ward each group appropriately.Sales metrics are easier to define and track.

Some of the most common measures are per-cent of sales quota achieved, number of newcustomers, number of sales closings, averagegross profit per customer, and sales expense tototal sales. When downstream marketers be-come embedded in the sales process—for ex-ample, as members of critical account teams—it’s only logical to measure and reward theirperformance using sales metrics. But then howshould the company evaluate its upstreammarketers? On the basis of the accuracy oftheir product forecasting, or the number ofnew market segments they discover? The met-rics will vary according to the type of market-ing job. Senior managers need to establish dif-ferent measures for brand managers, marketresearchers, marketing information systemsmanagers, advertising managers, sales promo-tion managers, market segment managers, andproduct managers. It’s easier to construct a setof metrics if the marketers’ purposes and tasksare clearly outlined. Still, given that upstreammarketers are more engaged in sowing theseeds for a better future than in helping toreap the current harvest, the metrics used tojudge their performance necessarily becomesofter and more judgmental.

Obviously, the difference between judgingcurrent and future outcomes makes it morecomplicated for companies to develop com-mon metrics for Sales and Marketing. Up-stream marketers in particular need to be as-sessed according to what they deliver over alonger period. Salespeople, meanwhile, are inthe business of converting potential demandinto today’s sales. As the working relationshipbetween Sales and Marketing becomes moreinteractive and interdependent, the inte-grated organization will continue to wrestlewith this difficult, but surely not insurmount-able, problem.

• • •Senior managers often describe the workingrelationship between Sales and Marketing asunsatisfactory. The two functions, they say, un-dercommunicate, underperform, and over-complain. Not every company will want to—or should—upgrade from defined to alignedrelationships or from aligned to integratedrelationships. But every company can andshould improve the relationship betweenSales and Marketing. Carefully planned en-


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hancements will bring salespeople’s intimateknowledge of your customers into the com-pany’s core. These improvements will alsohelp you serve customers better now and willhelp you build better products for the future.They will help your company marry softer,relationship-building skills with harder, ana-lytic skills. They will force your organization toclosely consider how it rewards people andwhether those reward systems apply fairly

across functions. Best of all, these improve-ments will boost both your top-line and bottom-line growth.

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page 41

Further ReadingA R T I C L EThe Quest for Customer Focusby Ranjay Gulati and James B. OldroydHarvard Business ReviewApril 2005Product no. 9645

These authors argue that companies must do even more than integrate Sales and Marketing to successfully anticipate and satisfy customers’ needs. Their suggestion? Develop a customer relationship management system that enables all parts of your organization to share and interpret customer information. To achieve this level of integration: 1) Create a companywide repository containing customer-transaction data from various parts of your enterprise. Make the customer—not account, purchase, product, or location—your fundamental unit of data analysis. 2) Share insights from cus-tomer data across your organization. Royal Bank of Canada (RBC) used input from its analytics, product-management, and finance groups to identify new features that revived a previously unprofitable product package. 3) Anticipate and shape future customer in-teractions. Use your data to create models predicting customer behavior (such as switch-ing to a new competitor), then design interven-tions to alter that behavior. 4) Weave customer focus into your workforce’s everyday behav-ior. Give employees the autonomy and techni-cal tools they need to make informed cus-tomer-focused decisions.

Integrating all parts of your organization so they focus on the customer pays big dividends. RBC discovered this firsthand: it grew dividends from $.68 a share in 1996 to $1.75 in 2003 by driving high-value customer growth 20% and average customer profitability 13%.


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