Sales Governance Study

Capgemini Consulting the way we see it

Sales Governance study

How leading companies in the Nordic region steer and develop their sales organisation

Table of content

Executive summary 3

Study overview 4

Definition of Sales Governance and its elements 6

Overview – Sales Governance maturity 8

Sales Management 10

Sales Performance Measurement 14

Compensation and Incentives 18

Sales Coaching and Training 22

Summarising discussion and way forward 26

About Capgemini Consulting 28

the way we see it

Executive summary

Companies face many challenges in The four elements of Sales optimally steering their sales organisa Governance have reached different tions. For example, this is often the levels of maturity. Sales Management case for more mature organisations in is the most elaborated element. But need of more structure. Usually this even though basic enablers are typi need occurs after phases of business cally well defined, companies continu growth with many sales initiatives ously improve the synchronisation of and less control, as well as after cost the strategic and operational levels saving phases when companies aim of Sales Management and enhance to steer their sales organisation more cross-functional co-operation. Sales efficiently. Performance Measurement is mod erately mature, however, the defined Capgemini examined 42 leading Key Performance Indicators (KPIs) companies from different industries did not fully enable an efficient track in Finland, Norway and Sweden ing and steering of sales behaviour. regarding how they handle Sales Gov Due to the various Compensation ernance and the related challenges and Incentive models available, com and best practices. The study was panies face challenges in optimising conducted through in-depth qualita their compensation structure. Sales tive interviews and a quantitative Coaching and Training was seen as an online survey. The participants were emerging area. Sales Executives, mostly the Heads of Sales, but also CEOs or Business Area Even though the maturity levels vary Managers. between the companies and industries investigated, a common pattern exists All Sales Executives stated that Sales for Sales Governance. It is used rather Governance will become more impor for controlling purposes than for driv tant in the future. In addition, 86% ing the continuous improvement of of the Sales Executives anticipate sales performance. their group management to put more focus on questions related to Sales Overall, leading companies in the Governance the coming three years. Nordic region have the potential to further develop and improve their The Sales Executives saw driving sales Sales Governance models. To take productivity and reducing non-value Sales Governance to the next level, adding time as the major benefits of three main principles should be kept Sales Governance. In addition, Sales in mind: Integration of the different Governance enables best practice iden Sales Governance elements, Cross- tification and implementation, and functional alignment and keeping a ensures an adequate sales behaviour. clear focus on the improvement objec tives and benefits.

Sales Governance study Study overview

Why a study on Sales Objective and methodology The Sales Governance Governance? This study examines sales governance framework creates the This study is part of Capgemini’s con practises in leading Nordic companies “ tinuous research into the trends and and aims to identify related chal necessary balanced, holistic issues in the business environment lenges, best practices and areas for perspective to optimise sales of our clients. Sales Governance has further development. To gain a broad effort and maximise results. been experienced as a very important understanding of the topic, the study topic by many Sales Executives. covered a broad range of industries. Sales Director, Energy Industry Companies face many challenges in optimally steering their sales organisa During January-April of 2008, 42 tions, for example: representatives from Finland, Norway and Sweden participated in the study. • Having evolved to more mature The participants were Sales Executi organisations, companies struggle ves, mostly the Heads of Sales, but to establish more structured and also CEOs or Business Area Managers consistent ways of working. (or equivalent). • Phases of business growth often result in new sales initiatives and A total of 35 in-depth interviews were less control of the sales organisa conducted in addition to 21 online tion in terms of operations and survey responses. The qualitative costs. interviews followed a standardised • Expansion to new business seg approach with open questions on ments requires a more thorough Sales Governance and its elements to and coordinated sales governance gain insights based on the statements model. of the Sales Executives. The quan • Business complexity and the titative part of the study comprised number of interaction points have an online survey targeting the inter increased due to a wider business viewed Sales Executives and other key scope, involving more customers managers within the sales organisation. and suppliers. • Phases of cost savings often result in pressure to run the sales organi sation in a more cost efficient way. For companies from all industries, the elements of the Sales Governance Framework are key in actively driving the sales organisations towards effec tiveness and higher performance.

the way we see it

Participating companies Figure 1 Participating companies per The interviews and online surveys industry were conducted primarily with large Other companies in the Nordic region. 50% Consumer Transportation of the participating executives were 10% goods 5% from Sweden, 31% from Norway and Retail 25% 5% 19% from Finland. Media 5%

As seen in figure 1, the participating 10% Tele- 16% communication companies cover different indus Manufacturing 10% tries to ensure a broad approach to 14% Financial and solid understanding of Sales services Governance. The main industries Energy are consumer goods, manufacturing, energy, financial services, and tele communication.

Among the participating companies, more than 90% have multinational sales operations including Finland, Norway and Sweden.

Capgemini Consulting would like to express its sincere appreciation to the Executives who participated in this study. There was an enormous interest in the topic, and we hope you find our report thought-provoking and valuable.

Sales Governance study Definition of Sales Governance and its elements

Sales Governance is defined as the Sales Governance is influenced by envi method used by management to drive ronmental factors, such as the corporate the sales organisation towards effec strategy, corporate culture, customers, tiveness and high performance and to and competitors. These factors can have promote a desired sales behaviour. It a constraining or encouraging effect on can be visualised in the Sales Gover the development of each element, but nance Framework containing four dif are not further examined in this study. ferent elements (see figure 2): Similarly, aspects such as sales strat • Sales Management egy definition, sales process, and sales organisation structure are also not in • Sales Performance Measurement scope of this study. • Compensation and Incentives • Sales Coaching and Training Sales Management is the core element of the Sales Governance Framework. It There are strong links between all of entails both a strategic and an opera these elements, and they can not be tional level. At the strategic level of viewed or developed separately. Sales Management, the sales strategy is aligned with the corporate strategy and short-term and long-term busi Figure 2 The Sales Governance framework ness objectives are defined. At the operational level, the activity plan is implemented and managed as required. Corporate Strategy Cross-functional co-operation is a pre requisite for achieving internal strategy alignment and operational efficiency. To support the strategic and operational levels of sales management and the cross-functional co-operation, four key enablers (forums, roles and responsi bilities, processes and tools) need to be Sales Performance in place. Competitors Measurement

Sales Customers Management

Sales Coaching Compensation and Training and Incentives

Culture

the way we see it

Sales Performance Measurement which are in most cases equivalent context of an overall model for sales is used to monitor how the sales to a monthly salary and a monthly training and sales career development. organisation is performing against or annual bonus. Incentives can be Trainings help to develop skills and the set targets. Performance meas grouped into financial and non- competence through typically stand ures are typically expressed as KPIs financial. Good performance is ulti ardised course format. In combination and can be both, financial and non- mately defined by breaking down cor with that, coaching is an efficient way financial. KPIs play a vital role in porate targets to an individual level for of encouraging salespeople to adopt the steering the sales organisation. In which performance can be measured. training content in their daily work. addition, they allow initiating correc tive measures, if defined targets are Sales Coaching and Training is an at risk. Performance measures can be efficient tool in supporting individuals distinguished as leading and lagging. and groups to recognise ways to opti Lagging measures include financial mise their sales behaviour. Coaching KPIs such as revenue and margin, and provides individual guidance, sup report the final results of sales activi port and feedback through interaction ties. Leading measures are often proc rather than instruction. It aims to ess-related, action-oriented and focus increase the awareness for personal on performance driving the result, e.g. strengths and improvement areas to number of customer visits. reach the sales goals. Coaching is par ticularly useful for one-on-one con Compensation and Incentives versations, but can also be included in include a variety of rewards both for group sessions. It must be seen in the the individual and the team to reward good performance and to stimulate motivation. Compensation can be divided into fix and variable parts,

Sales Governance study Overview – Sales Governance maturity

Figure 3 Impact of Sales Governance Maturity levels vary between the 86% of the Sales Executives anticipate components Sales Governance elements their Group Management to put more The four elements of Sales Governance focus on questions related to Sales Coaching salespeople have reached different levels of maturi Governance the coming three years. Clear sales management process ty in the investigated companies. Clearly defined sales targets According to the Sales Executives, The Executives saw driving sales Defined roles and responsibilities Sales Management is the most mature productivity and reducing non-value Performance incentives and elaborated element, as a lot of adding time as the major benefits of Clear forum structure Sales Governance. In addition, Sales Documented sales effort has gone into developing Sales process Governance enables best practice iden Non-financial sales Management practises and processes. behavior measures Thus, basic enablers are typically well tification and implementation, and Financial KPI’s defined. As this is the core element, ensures an adequate sales behaviour. Sales competitions No Low High Very companies focus on continuously impact impact impact high impact improving their Sales Management, As illustrated in figure 3, certain Sales especially in terms of synchronising the Governance components are regarded strategic and operational levels of Sales as more important in driving the Management and enhancing cross- desired sales behaviour. However, the functional co-operation. capabilities to apply these components varied (see figure 4), an aspect closely The Sales Executives evaluated the ele linked to areas of improvement. The Figure 4 Current performance of Sales coaching of salespeople is evaluated Governance components ment of Sales Performance Measure ment as moderately mature, stating to have a very high impact on the possibility to drive sales behaviour, Clearly defined that KPIs were defined and sales per sales targets formance was followed-up. However, but applying coaching was seen as Clear forum structure very challenging. As many as 33% of Defined roles and the defined KPIs were not assessed to responsibilities fully enable an efficient tracking and the respondents stated that their com Financial KPI’s panies are poor or very poor at coach Clear sales steering of sales behaviour. Due to the management process ing their salespeople. A similar issue Performance various Compensation and Incentive incentives can be seen in the Sales Management Documented models available, companies face chal sales process process. Companies experience that Sales competitions lenges in optimising their compensa the processes can make a difference in Coaching salespeople tion policies. For instance, Sales Non-financial sales Executives found it difficult to firmly steering sales behaviour but that they behavior measures Very Poor Good Very define on which KPIs the compensa are not sufficiently skilled in using poor good tion and incentive model should be them. If improved, both Coaching based. Sales Coaching and Training salespeople and Sales Management was seen as an emerging area and, processes thus have a potential thus, evaluated to have the lowest impact. maturity level. Although the majority of investigated companies has stand Regardless of the enhancement area, ardised training programmes, they lack the Sales Executives highlighted the an established coaching culture. importance of involving the sales people and creating commitment to The importance of Sales the components as a key success fac Governance is growing rapidly tor in implementing improvement All Sales Executives stated that the initiatives. importance of Sales Governance will increase in the future. In addition,

the way we see it

Sales Governance study Sales Management

Introduction Sales Management related Sales Management is the core element findings of the Sales Governance Framework Having solid Sales Management ena- (see figure 5 for an overview of its blers in place is not a genuine source components). Sales Management is of competitive advantage strongly linked to Sales Performance Measurement through the tar Independently of the industry, a basic get setting process. Linkage to set of processes and forum structures Compensation and Incentives as well are defined and in place. More than as Sales Coaching and Training ele 95% of the respondents stated that ments is, for example, created by they use a clear Sales Management aligning the salespeople’s individual process and forum structures. 86% objectives and coaching needs with of the companies indicated that the Sales Management targets. roles and responsibilities within Sales Management are also well defined (see figure 6 on next page). In addi tion, a clear interdependency emerges between the role descriptions and the Figure 5 Sales Management model process. To some extent, good role descriptions can compensate week mple process documentations, and vice & i me g he s nt in te t tra a n u te ti versa. n c g o a e n l y x , P e “To compensate the lack of process, the Strategy input company relies on well-defined role • Corporate Strategic Level Operational Level descriptions and tries to enforce the strategy Sales Management Sales Management • Customers coaching culture to secure that Sales is • Competion F , e managed and controlled.” e n d io b at s a r y ck, integ n n io chronisat Manager Marketing and Sales, Manufacturing Industry

Strategy alignment Operational efficiency Overall, the respondents are con • Product, brand, channel strategy fident with the Sales Management • Production, sourcing enablers and see these as important for driving sales, but not as a source Cross-functional co-operation of competitive advantage. The main improvement area appears to be the

Roles & sales process documentation, where a Enablers Forums responsibilities Processes Tools fourth of the participating companies still saw improvement potential (see figure 6 on next page).

the way we see it

Other improvement areas mentioned touched upon annually or bi-annu Figure 6 Application of Sales were enhancing efficiency of forum ally, whereas operational planning and Management enablers in terms of frequency, participation, sales performance measurement may agenda, and objectives to increase the take place daily. Clear sales management time with the customers. Companies process also strive to improve the tools sup The link from the operational to the Clear forum porting Sales Management, especially strategic level is often not as well structure regarding data management and inte implemented as the other way around. Documented sales process gration. Annually prepared sales strategies or Defined roles and customer plans are rarely reviewed responsibilities and updated during the year. When 0% 20% 40% 60% 80% 100% Increasing need for enhanced cross- targets are not met, fire fighting takes functional co-operation and transpar- Very Good Good Poor Very poor place in the shape of action planning, ency though this easily leaves strategic Only 52% of the Sales Executives planning as an isolated annual task. believed that the roles and responsi bilities of other functions involved in Due to the challenges of synchronis the sales process, such as marketing, ing the strategic and operational lev customer services, supply chain, or els, Executives have limited options Figure 7 Roles and responsibilities of finance, are clearly defined and under to effectively drive the desired Sales non-sales function employees stood (see figure 7). behaviour of the salespeople. As The roles and responsibilities of non-sales function decision making power is typically employees involved in the sales process are clearly In many of the interviewed compa focused on the Sales Executives, oper 60% defined and understood nies, co-operation with other func ational issues are often unnecessarily 50% tions is centred around joint forum escalated to the executive level, which 40% structures, whereas companies in turn decreases time for customer- 30% typically lack deeper cross-functional related and strategic level decision 20% co-operation based on aligned role making. descriptions, joint processes, and tar 10% get setting. 0%

Strongly Agree Disagree Strongly Agree Disagree Challenges to synchronise the strategic and operational levels of Sales Man- agement Achieving excellence at the operation Senior Sales Executives al Sales Management level or having should spend more customer- clear sales strategies does not suffice “ related time than internal for an effective Sales Management. Many companies see a challenge in managerial time – 70% synchronising the operational and the external and 30% internal strategic levels of Sales Management focus would be ideal. due to different time horizons and planning frequencies: the strategic Business Area Head, Consumer level in Sales Management is typically Goods Industry

Sales Governance study 11 Recommendations to further • Target setting by involving salespeople improve Sales Management creates higher commitment to targets and motivation to provide Facilitate effective and flexible cross- feedback. functional co-operation • Rolling planning should be adapted To deepen cross-functional co-opera in sales forecasting to better sup tion, companies are recommended port corporate planning and to design aligned role descriptions, budgeting. It is equally important joint processes, and common targets to establish up-to-date feedback to clarify how to drive collaboration loops to share the volume plans between functions. To improve the from sales to other functions such co-operation, one option is to appoint as production, increase the sales coordinative roles with overall respon forecasting accuracy, and create a sibility for certain areas (e.g. customer forward-looking attitude instead of segments or strategic products) to focusing on historical sales data. ensure that suboptimal activities with in the different functions are resolved. • Creating thorough customer plans for key customers ensures key account Due to increasing customer demands, managers prepare an action plan sales organisations need to tighten the that they will follow. touch points across the organisations, • Strategic sales plans should be from finance and controlling to mar reviewed during the year to confirm keting and supply chain functions. if the assumptions made are still Many companies focus on developing valid or if updates are necessary a seamless co-operation between sales and the budget allows. A clear and marketing, but in manufacturing, process should thus be in place, for example, the pressure increases to preferably supported by a tool achieve more transparency throughout guiding the work. This enables the the end-to-end supply chain. organisation to integrate new infor mation in planning and respond Focus on synchronising strategic and more swiftly to changes in the mar operational levels of Sales Management ketplace. by establishing firm feedback loops • Communicating strategies widely Although most participating compa across the organisation promotes nies have a comparatively mature level openness and reduces personal of Sales Management enablers and agendas. They are typically shared are capable of turning sales strategy within the sales organisation but to concrete activities, several initia should also be communicated tives can be identified to improve the across functions, for example with link between strategic and operational marketing. levels:

12 the way we see it It is important to have “the right rhythm in Sales. Director Customer Relations, Consumer Goods Industry

Additional insights

Besides the recommendations and findings mentioned, a number of interesting aspects were discussed in interviews with Sales Executives. Some additional insights from these discussions are:

• Delegate decision making authority within clearly defined boundaries to lower levels of the sales organisation which are closer to the operational issues on a daily basis.

• Support salespeople in prioritising their work and in balancing their time spent on internal versus external matters. Proper sales planning, prioritisation of customer segments and key customers, target setting, and action planning are critical.

• When conducting strategic development projects with customers to increase collaboration, sufficiently support salespeople with additional project manager responsibility for cross- functional teams, e.g. by coaching.

• Implement tools supporting the sales management process from strategic to operational level, and vice versa, e.g. for managing and maintaining documentation and follow-up on targets and action plans.

Sales Governance study 13 Sales Performance Measurement

Figure 8 Number of KPIs in use Introduction non-financial measures, appears to be Sales Performance Measurement the main challenge. 70% is usedmore thanto monitor 9 how the sales 60% organisation7 to 9 is performing against If non-financial KPIs are not followed 50% up regularly and integrated into sales the4 set to 6 targets. Performance meas 40% performance measurement system, ures1 toare 3 typically expressed as KPIs. 30% Sales Performance Measurement is companies will be at risk of not focus 20% closely linked to Sales Management ing sufficiently on qualitative factors, 10% through the process of target setting such as customer satisfaction, time 0% and following up of performance. spent with customers, which may be 1 to 3 4 to 6 7 to 9 more than 9 It is also connected to the area of important factors in strengthening the Compensation and Incentives, as the customer relationships. performance measurement data typi cally constitutes the basis for reward In addition to typical financial KPIs, ing. some companies also follow up other Figure 9 Use of non-financial measures parameters, such as planned activi

We use non-financial measures to steer and drive Sales Performance ties performed, variances in terms and the desired sales behaviour 50% Measurement related findings conditions per deal, etc. These param eters are often secondary in impor 40% Companies tend to use few basic KPIs tance. Therefore, corrective actions are 30% Most of the interviewed companies not taken in case of deviations, as long use a small set of very basic KPIs. 20% as the primary KPIs meet the targets. 76% measure a maximum of six KPIs 10% (see figure 8). Sales volume or value KPIs are frequently measured but insuf-

0% is the most common one in addition ficient follow-up and corrective actions to revenue, margin, and market share, are taken Strongly Agree Disagree Strongly Agree Disagree but the drill-down varies. The capabilities to utilise Sales Performance Measurement data typi Due to the focus on measuring finan cally depend on the frequency of meas cial KPIs, the non-financial KPIs are urement and reporting forums. This is often overlooked. In fact, less than Figure 10 Regular mesurement of KPIs due to the fact that reporting forums half of the interviewed companies often make the decisions concerning We track KPIs on a regular basis use non-financial measures to drive a 50% corrective actions. Synchronising the desired sales behaviour (see figure 9). sales performance measurement and 40% What is more, the companies actually reporting forums is a challenge: 86% 30% using non-financial KPIs state that less of companies track KPIs on frequent focus is put on them vs. the financial basis (see figure 10), whereas reporting 20% ones. The non-financial KPI most and follow-up forums are held less fre 10% commonly used was the “number of quently, monthly or often even quar customer visits”. In general, compa 0% terly. Naturally, the frequency of KPI nies find it difficult to develop more measurement and follow-up is influ Strongly Agree Disagree Strongly Agree Disagree advanced performance measures, enced by the length of the sales cycle, because setting an appropriate base e.g. capital goods industry versus fast line for the metrics, especially for moving consumer goods industry.

14 the way we see it

Overall, it can be stated that compa ance by putting efforts into making nies are ambitious when it comes to individuals achieve their goals. Due to The main benefit of measuring but less keen in taking cor insufficient links between individual having a clear set of KPIs rective actions and making improve and company performance, there is “ ments based on the KPIs. also a risk that individuals will lose is that it sends the signal motivation if the compensation is too that we follow-up on “Measuring and reporting problems is dependent on the overall performance not a mean in itself, the time should important areas we want of the company. rather be spent on fixing the prob- to focus on. lems.” System support for performance meas- Marketing & Sales Manager, Head of Marketing and Sales, Manufacturing Industry urement and reporting is hard to effi- Transportation Industry ciently adapt Another challenge mentioned by sev When it comes to system support for eral Sales Executives is keeping the performance measurement and report focus on what lies ahead and which ing, the situation varies dramatically proactive initiatives need to be taken. between the companies. The com Following up on KPIs highlights the panies have either invested heavily results from previous actions and the in large ERP systems with extensive Executives experience that historical functionalities for performance report data has limited impact on how they ing, or they still rely on manual rou plan for the future. tines based on spreadsheet reporting. The problem with a large ERP system Difficulties in developing an aligned set is that it can quickly become complex of KPIs to handle and demands time-con suming trainings to understand the Although Sales Executives are satisfied system. The spreadsheet reporting with their current set of KPIs, mis model is easy to handle but bears alignment exists between short-term several risks in terms of accuracy due tactics and long-term strategy. The to manual input and management of conflict occurs due to the relative ease the model. In fact, very few of the of measuring short-term tactics, often interviewed companies appear to have done on activity level or by using sim established an appropriate balance in ple financial measures. Typically, the system support for performance long-term strategy is more challenging measurement. to measure due to less concrete objec tives.

Balancing individual and collective targets is another typical challenge for Sales Executives, as fulfilling individu al KPIs does not necessarily equal the fulfilment of the company’s overall tar gets. This limits management’s possi bility to steer organisational perform

Sales Governance study 15 Recommendations to further strategy, for example, measuring the whereas regular follow-up processes improve Sales Performance “number of launched products” may too often constrain immediate cor Measurement be a key metric for realising objec rective actions on more frequent tives such as “reduce market risks deviations of smaller scale. By using Integrate leading KPIs to understand by broadening the existing product predefined early-warning indicators, the drivers of performance portfolio”. companies can ensure quick and con Integrating the non-financial measures sistent actions for deviations requiring in the Sales Performance Management Balancing the non-financial and immediate focus. system is critical for understanding financial measures is often critical to the drivers of performance. To exclu avoid suboptimal sales behaviour. For Increase focus on proactive measure- sively rely on financial measures is an example, the “sales volume” should be ment inefficient way of measuring perform integrated with the “number of strate ance, making it difficult to clearly see gic products sold” to ensure that sales To ensure a more proactive approach the link to sales behaviour. Hence, people direct their activities towards to planning and executing correc additional leading KPIs need to be achieving the targeted sales mix. tive actions, the number of proac identified to complete performance tive measures should be increased. tracking (illustrated in figure 11). “Finding the right mix of measures Currently, in many companies fore Since leading KPIs often are specific have had a positive impact on how we casting is an underdeveloped area to the industry, these kind of meas manage sales behaviour.” driven by controlling units that merely ures should be identified by analysing Head of Sales and Marketing, apply simple forecasts ratios. In more the behaviour of the best performing Transportation Industry advanced forecasting models, meas salespeople. Measuring financial KPIs ures indicating future performance are in combination with additional meas Align follow-up processes and perform- used, for example “number of deals ures allow managers to quickly adjust ance measures in a specific sales stage in the sales and take corrective actions on below- Typically, lot of effort is used to report funnel” and “probability of sales”. target performance. performance on a frequent basis The foremost purpose of using these without dedicated follow-up respon measures is to improve forecasting Non-financial measures can also sibilities assigned that are operating accuracy. Effective use of forecasting is be utilised in establishing the link with similar frequency. Standardised a key to take charge over time spent between strategic objectives and the procedures can exist for escalating on sales, and also offers an instrument drivers for fulfilment of the long-term large-scale deviations in performance, to be used for effective coaching.

Figure 11 Difference of leading vs. lagging KPIs

Use of only lagging KPIs Use of leading and lagging KPIs

Activity Performance Activity Performance

Pr o cess KPIs e.g. – Le Lagging KPIs e.g. a e.g. revenues ding KPIs ts – number revenues l lts – Lagging of visits per su Resu week Re Reporting Behaviour Reporting

Review Review

the way we see it

There is a difference between “results and drivers. By only measuring KPIs, such as sales volume, you are not able to intervene quickly and take corrective actions.

Head of Global Sales Operations, Manufacturing Industry

Additional insights

Besides the recommendations and findings mentioned, a number of interesting aspects were discussed in interviews with Sales Executives. Some additional insights from these discussions are:

• Best practice for driving the sales process forward is to have standard indicators for how much time needs to be spent on a deal at each sales stage of the sales funnel. If the standard time is exceeded, the deal will be followed up to identify the reasons for the delay and to ensure sales funnel quality.

• User-friendly system where all reported input leads to relevant and useful output (e.g. the output can be used by salespeople to view a bonus forecast).

• Systems integrating marketing and sales indicators and enabling root cause analyses of sales drivers (e.g. average price development, purchase frequency, market penetration) are used to fine- tune the KPIs.

• An increased integration with customers allows joint measures and data sharing to further understand sales drivers and track sales performance (e.g. point of sales data, collaborative forecasting).

Sales Governance study 17 Compensation and Incentives

Figure 12 Overview of reward types Introduction • The variable part is not paid often and examples Compensation and Incentives include enough. Typically, the bonus is many different types of rewards (see paid annually. This decreases the Compensation figure 12). The capability to accurately everyday motivation, as the time Fix Variable measure performance is the basis of between compensation and the

• Fix monthly pay • Variable part of pay creating an effective mix of reward actual performance is considered (i.e. bonus based types. The alignment of different too long. on performance) rewards ensures the sales organisation

Incentives is working as a one unit towards com Incentive programmes are often used Financial Non-financial mon targets which are defined in the not only to motivate existing sales people but to attract new employees. • Trips • Awards such as Sales Management process. A cultural • Dinners, event “Salesperson of dimension is in many aspects related tickets the year” “Incentives have become more or less a to Compensation and Incentives. For hygiene factor – needed to be on indus- instance, there is often a higher accept try par – rather than as an instrument ed level of variable compensation in to drive sales behaviour.” individual cultures compared to more team-oriented ones. Manager Marketing and Sales, Manufacturing Industry Findings related to Compensation Since financial rewards often fail and Incentives to fulfil their purpose, the Sales Executives stress the importance of Figure 13 Effect of compensations Compensation models are not sufficient to drive motivation on a daily basis systematically using non-financial rewards as a supplement. The compensations we use to reward the The intention of Compensation and salespeople drive desired sales behaviour Incentive programmes is to motivate “If people are doing a good job, they salespeople and thereby promote the get more responsibility, better develop- desired sales behaviour. However, more ment possibilities in projects, and alto- than 50% of the Sales Executives com gether more visibility. The monetary mented that the compensation struc incentives need to be complemented tures used fail to promote the desired with these rewards.” 0% 20% 40% 60% 80% 100% sales behaviour, thus indicating a clear Head of Sales, Pharmaceutical Industry improvement area (see figure 13). Strongly Agree Disagree Strongly Agree Disagree Discrepancy can, for example, result from the following factors: • Insufficient variable compensation. In most of the interviewed compa nies, the variable part of the salary amounts to approximately 20% of the total annual salary. Several Sales Executives stated that this amount is not sufficient to make an impact on a salesperson’s behaviour on a daily basis.

18 the way we see it

How could you possibly “understand your own contribution to the Group result if it’s being remarkably reduced due to depreciation of goodwill?

Director Business Sales, Telecom Industry

Sales Governance study 19 Figure 14 Individual and team based Risk of suboptimal compensation – However, increasing the variable part rewards individual versus group performance linked to individual performance Some of the interviewed compa should be considered very carefully We have a good set of compensations that reward both the individual and the team nies have started to move towards based on industry requirements to more individually driven incentives, avoid hampering teamwork. Across whereas others use group perform industries, companies should strive ance-based compensation models. towards a model where a compara These are mostly based on geographi tively low proportion of compensa cal criteria, such as district or country. tion and incentives is directly tied to Such incentives could encourage team company performance. The individual 0% 20% 40% 60% 80% 100% work contribution but at the same salesperson perceives the own influ Strongly Agree Disagree Strongly ence on the company’s performance as Agree Disagree time reduce individual ambitions. Balancing the individual and the team relatively low, and hence will feel less compensations is an ongoing chal committed to contributing to com lenge, as approximately 40% of the pany results. Instead, it is preferable companies are lacking compensation to pay compensation on individual models that would reward both performance, which should ultimately (see figure 14). be clearly linked to company results.

Group-based incentive structures help To avoid suboptimal results, it is to put focus on overall corporate tar important to align the compensation gets and collaboration. Nonetheless, with the company values and the tar the Sales Executives stated that com gets of other functions. One way of pensations and incentives insufficient maintaining the focus on teamwork ly linked to individual efforts prevent is to conduct competitions for sales this very purpose, i.e. as instruments teams (where applicable). to motivate a desired sales behaviour and drive the performance of the indi Another important aspect of the vidual salesperson. compensation mix is to consider how high performers can be exposed. This Recommendations to further could be done in many different ways: improve Compensation and formally, by enhancing the employee’s Incentives responsibilities, through “salesperson An efficient compensation of the month” awards, or informally, structure should have a high Optimise the mix of and increase the for example through exposing suc “ focus on individual compensation and cessful sales employees in newsletters variable part, allow exposure incentives or by promoting best practice stories. of performance, and contains The variable part of the total compen Regardless of the method used, a a close follow-up structure. sation is often too low to truly impact structured approach towards recognis motivation. The link to individual ing good performance is important Head of Global Sales Operations, performance has to be clearer to steer and helps to define role models for Manufacturing Industry the behaviour of the salespeople. the targeted sales behaviour

20 the way we see it

Use more frequent incentive intervals to drive everyday motivation Many companies pay variable rewards on an annual basis. However, defin ing incentives on a quarterly or half- year basis helps to more clearly link individual performance and incen tives, and thus promotes the targeted behaviour among the salespeople (for practical reasons, pay-out can still be made on an annual basis). One Sales Executive expressed that “annual bonus is something one takes for granted”, a notion that can be addressed by more frequent bonus intervals. However, to maintain a constantly high level of motivation throughout the year, establishing structures preventing the salespeople from being fully satisfied upon fulfill ing their targets within the first quar ters is essential. This can, for example, be achieved by using incentives that increase gradually throughout the year.

Additional insights

Besides the recommendations and findings mentioned, a number of interesting aspects were discussed in interviews with Sales Executives. Some additional insights from these discussions are:

• If the variable pay is connected to the company results, communicate the results on a monthly basis to motivate the individuals to further contribute to the company results.

• A high exposure of performance can be a motivator without additional financial rewards, e.g. monthly publication of sales results with a traffic light status encourages salespeople to try harder to avoid receiving a red light.

• Combine incentive trips with learning purposes, e.g. reward good performance with a trip to another national sales company within the group to share best practices.

• Incentives are all about the right timing. What is more, even small signs of appreciation are extremely important.

• Allow the employees to choose whether they want to take a higher risk, e.g. by accept- ing a lower fixed compensation in favour of an even higher variable part upon high performance.

Sales Governance study 21 Sales Coaching and Training

Figure 15 Impact of coaching Introduction It was emphasised that standardised Sales coaching provides individual trainings should be complemented Impact of coaching to drive desired sales behavior guidance, support and feedback with individual coaching on a regular through interaction rather than basis to ensure a lasting effect. Sales instruction. Trainings help to develop coaching should not only be limited skills and competence through typi to specific trainings. cally standardised course format. In combination with that, coaching is In companies where sales perform an efficient way of encouraging sales ance cannot be measured easily (e.g. 0% 20% 40% 60% 80% 100% people to adopt the training content in cases of indirect sales, or when

Very High High Low Very Low in their daily work. Together with sales is driven more by market-related the management process and clearly factors than sales performance), it was defined sales targets, sales coaching is mentioned that coaching can be espe a crucial element to drive desired cially important. In these cases, sales sales behaviour: coaching can compensate for the lack of traditional KPIs used to drive sales “One of the most important factors in behaviour. Figure 16 Top three improvement areas sales governance is to ensure that sales resources develop the right competence, 50% create motivation and develop the right Few companies have a structured 40% sales behaviour” methodology to accomplish sales coaching and training 30% Sales Manager, Media Industry Despite its importance, Sales coach 20% Findings related to Sales ing is still the area within the Sales 10% Coaching and Training Governance Framework where the potential for improvement appears to 0% Sales Clear sales Clearly defined Sales coaching is an important instru- be most apparent: 48% of the respon coaching management sales targets process ment to enforce desired sales behaviour dents rank sales coaching as the most Sales coaching is seen as an impor important element to improve in the tant method for developing adequate coming three years (see figure 16). competences, motivation and sales behaviour. 95% of the respondents Based on the interviews it seems that rank coaching as important or very the desire to improve sales coach Figure 17 Coaching guidelines and important for managing and driving ing is closely linked to a general lack culture the desired sales behaviour of the of clear coaching guidelines. In the survey, less than 30% say that they We have common guidelines and principles that ensure sales organisation (see figure 15). In efficient and consistent coaching of salespeople the interviews, sales coaching and have common principles to ensure training were often referred to as the salespeople are coached in a consist most important elements of the Sales ent manner (see figure 17). Sales Governance Framework. Executives also mentioned that coach We have a strong coaching culture in our company ing initiatives often rely on individual “Coaching is an essential component efforts rather than company efforts. in sales governance. Coaching is a key factor to support performance. This is 0% 20% 40% 60% 80% 100% becoming more and more important” Strongly Agree Disagree Strongly Agree Disagree Sales Director, Energy Industry

22 the way we see it

Sales coaching should be “happening all the time, not in one single session. This is a critical part of sales.

Sales Director, Consumer Goods Industry

Sales Governance study 23 Only a minority of companies report Most companies are unsure of the Coaching should be that they have established a strong actual effects of sales coaching. Or as a done, but measuring its coaching culture in their company. At Sales Director in the consumer goods “ the same time, the Sales Executives industry put it: effects can be difficult. say that they want to prioritise this “We are not certain of the effects of area in the time ahead. Vice President of Sales, coaching. Generally it increases motiva- Consumer Goods Industry “The current coaching approach is tion, but people tend to go back to old individually driven by each sales behavioural patterns in the long run” manager. Today we lack a common Sales Director, Consumer Goods Industry approach to coaching, but this will be one of the areas to develop for the Recommendations to further years to come”. improve Sales Coaching and Director Business Sales, Telecom Industry Training

In general, there are large differences Implement a structured model for sales in the sales coaching and training coaching and training approaches. Some companies have a Companies should promote and devel strict structure for competence devel op sales coaching and training initia opment that is based on standardised tives according to a structured model trainings. Other companies apply (see example in figure 19). It should a learning-by-doing approach and be used as a means to ensure continu standardised methodologies are met ous improvement and the development with mistrust. of the sales organisation. To realise the effects of the underlying layers, Evaluating effects of sales companies should develop a common coaching is a major challenge coach training programme and use Figure 18 Measurement of coaching Evaluating the effects of coaching is individual coaching to enforce desired effects a prerequisite to ensure continuous sales behaviour and improve sales force improvement and alignment of sales efficiency. We follow up on coaching initiatives to make sure that these results in actual effects targets and strategic objectives. The majority of companies find it difficult Emphasise continuous feedback and to measure the effects of coaching (see improvement figure 18). Some companies evaluate Together with individual career plan sales competence in exams, certifica ning and target settings, Sales coaching tions or employee surveys. These needs to be integrated in the common evaluations do not capture the effects framework for core sales competence 0% 20% 40% 60% 80% 100% of sales coaching. Many companies development. Individual coaching Strongly Agree Disagree Strongly observe the positive effects of coach Agree Disagree should be used to increase motivation ing without formalised measurement among salespeople, encourage desired methods. Others have no awareness sales behaviour and ensure long-term of any positive long-term effects of effects of competence development. coaching. The model should emphasise continu ous feedback and the improvement of

24 the way we see it

different training components. Sales Figure 19 Model for sales competence development Managers should be given sufficient support to make use of coaching. This Individualised sales competence can be supported by creating a forum for exchanging best practices. Individual coaching/feedback/ Self- mentoring realisation vement Follow up on coaching initiatives to raining ro Appraisal interviews, ensure they result in actual effects Individual career collaborative target plans setting and planning

Effects of sales coaching and training ack and imp are difficult to quantify. Qualitative Sales behaviour Practical training effects on employee retention, sick Industry and customer specific Certification programmes ness absence, customer churn and Continous feedb competence satisfaction can be quantified, e.g. Onboarding/ in various employee and customer Maturity of Sales Coaching and T Basic sales competence and methodology fundamental courses surveys. Because of a potentially large error margin, the measurement of the coaching success should be sup ported by employee interviews and 360 degree feedback to further secure qualitative effects.

Additional insights

In addition to the recommendations and findings mentioned, a number of interesting aspects were discussed in interviews with Sales Executives. Some additional insights from these discussions are:

• A common methodology for a sales coaching culture is established throughout the sales organisation using a coach-the-coach programme.

• Creation of a common platform for core sales competence and methodology – while allowing for personal career development based on individual preferences and individual potential.

• Dynamic coaching model: the coaching methodology is continuously improved based on customer and employee feedback.

• Sales coaching is an integrated part of a common certification scheme.

Sales Governance study 25 Summarising discussion and way forward

Sales Governance is used rather Taking Sales Governance to the for controlling purposes than for next level driving the continuous improve- All Sales Executives stated that the ment of sales performance importance of sales governance will Even though the levels of maturity grow in the future. In fact, 86% of of Sales Governance and its different the Sales Executives believe that their elements vary between the companies Group Management will focus more and industries investigated, a common on Sales Governance-related questions pattern exists for Sales Governance. in the coming three years.

From the Sales Governance compo Overall, leading companies in the nents, the Nordic Sales Executives Nordic region have the potential to ranked sales coaching, clear sales further develop and improve their management processes and clearly Sales Governance models. As men defined sales targets as the most tioned, forerunners have acknow important factors to drive the desired ledged that continuous improvement sales behaviour. At the same time, is key to ensure competitiveness. But sales coaching and clearly defined to succeed with change and improve sales management processes were ment initiatives and to take Sales also identified as key improvement Governance to the next level, three areas. Financial KPIs were considered main principles should be kept in the least important component to mind: drive desired sales behaviours. This shows that measuring performance 1. Integration of the Sales Governance alone is not a means to ensure high elements by adapting a holistic performance. Rather there must be an perspective on governance and optimum balance between different strengthen the links between KPIs to drive the business. This bal the four elements. In particular, ance should not be static, but evolve the elements Compensation and according to business objectives. Incentives as well as Training and Coaching should be tied closer The study results indicate that most together with Sales Management companies use Sales Governance ele and Sales Performance Measure ments as controlling mechanisms. ment. Understanding that sepa Generally, Sales Governance is seen as rated elements will lead to sub a passive, rather administrative and optimal results is key to ensure the rigid method for controlling the oper success of improvement initiatives. ations instead of an actively evolving, Bringing the Sales Governance ele adaptable and flexible governance ments together will create sustain model. Only few companies use an able motivation for salespeople. elaborative governance model as a The old management rule “only way to truly drive sales effectiveness what gets measured gets done” and high performances. still applies in the context of driv

26 the way we see it

ing the right sales behaviours. sales value chain, i.e. how they implementation. Sales Governance Sales Coaching and Training sup can contribute and why they are supports efficiency gains, e.g. by port the way how this is done in important. Also, the role of Sales in focussing the salespeople on the the daily business. Compensation integrating the customer view (e.g. most important targets and neces and Incentives together with the Product Development) is of central sary actions and stopping those other elements will keep sales importance, especially in prod actions that do not create value. In people motivated. Overall, Sales uct-driven companies. The Sales times of economic downturn, sales Management sets the frame for the Governance model needs to be governance facilitates the quick other elements and will be rein aligned with other organisational adjustment to market changes forced by them if done efficiently. units such as marketing and deliv with modified targets using leading Integration is also important within ery. Furthermore, aligning the Sales KPIs and sales coaching. In addi each of the Sales Governance ele Governance model with customers tion, a balanced Compensation and ments, e.g. defining the right mix (where applicable) will strengthen Incentives element that includes of different KPIs, rewards, coaching strategic partnerships and promote not only individual financial and training components and syn a culture of information exchange. rewards but also recognition of the chronising the strategic and opera 3. Keeping a clear focus on the ben- individual and groups, make the tional sales management levels. efits. Sales Governance spans a sales organisation more stable and hence, less vulnerable to changing 2. Cross-functional alignment. It is wide area and improvement objec market situations. crucial that other business func tives need to be clearly defined to tions understand their roles in the stay focused and succeed with the

Key recommendations for each of the Sales Governance elements

Based on the findings of the study, the following recommendations are suggested to further improve each of the Sales Governance elements.

Sales Management • Focus on synchronising strategic and operational sales management levels by establishing firm feedback loops to increase the internal efficiency • Facilitate effective and flexible cross-functional cooperation to meet the increasing customer demands

Sales Performance Measurement • Combine lagging financial KPIs with additional measures to understand the true performance drivers • Increase the focus on proactive measurements to be able to take corrective actions in advance • Align follow-up processes and performance measures to avoid over-administration and inconsistent corrective actions

Compensation and Incentives • Optimise the mix of and increase the focus on individual compensation and incentives to motivate the salespeople • Increase the frequency of incentive intervals to drive the motivation of salespeople on a daily basis

Sales Coaching and Training • Follow up on coaching initiatives to ensure they create actual effects • Implement a structured model for consistent trainings and coaching • Emphasise continuous feedback and improvement to drive long-lasting competences

Sales Governance study 27 About Capgemini Consulting

About Capgemini and Collaborative Business Experience

Capgemini, one of the world’s foremost providers of consulting, technology and outsourcing services, enables its clients to transform and perform through technolo gies. Capgemini provides its clients with insights and capabilities that boost their free dom to achieve superior results through a unique way of working – the Collaborative Business Experience – and through a global delivery model called Rightshore®, which aims to offer the right resources in the right location at competitive cost. Present in 36 countries, Capgemini reported global revenues of EUR 8.7 billion in 2007 and employs over 83,000 people worldwide.

Capgemini Consulting is the management consulting discipline of the Capgemini Group. Our Marketing, Sales and Service practice has extensive experience with helping com panies to improve profitability through enhanced marketing, sales and customer service. Our knowledge covers strategy development as well as process-, organisation and IT development in a wide range of industries globally as well as in the Nordic countries.

More information about individual service lines, offices and research is available at www.capgemini.com.

28 the way we see it

Sweden Claudia Nylund [email protected] Peter Nilsson [email protected]

Norway Bettina Fossberg Johansen [email protected] Geir Mortensen [email protected]

Finland Hanna Aho [email protected] Antti Tapionlinna [email protected]

Project team Hanna Aho, Charlotte Andersson, Anne-Cecilie Bentsen, Louise Bergqvist, Mikkel Jonsson, Philip Konopik, Peter Nilsson, Claudia Nylund, Antti Tapionlinna

Design: Fresh Design

Sales Governance study 29 www.capgemini.com

Sweden Capgemini Gustavslundsvägen 131 P.O. Box 825 161 24 Stockholm Telephone: +46 8 5368 5000

Norway Capgemini Office address: Hoffsveien 1D, 0275 Oslo Mailing address: Pb. 475, Skøyen 0214 Oslo Telephone: +47 2412 8000

Finland Capgemini Niittymäentie 9 02200 Espoo Telephone: +358 9 4526 51