Daniel Pink is Wrong … At Least When It Comes to Professional Sales People

driveMuch has been written over decades on how to compensate sales people to achieve optimal results. The answers are all over the map. Daniel Pink’s best seller, Drive, advocated for intrinsic rewards not extrinsic, such as incentive pay. Those who like that idea jumped on his research and position. Trouble is, it is wrong in fact and by observation.

To be clear, it is wrong for most companies, except when it isn’t. Huh?

Most companies don’t have a lot of sales people. And, without question some good sales people are driven by extrinsic rewards (ie money) and some are more driven by intrinsic rewards (ie autonomy, purpose, etc.) If you create a reward system for your company that focuses on one or the other or some combination, you can likely attract enough good sales people for any approach. Ken Olsen, CEO of Digital Equipment, hated the idea of commission, and in an era when most of his competitors had highly commissioned sales people, he was successful without such a plan.

That being said, research also shows that Pink’s research was flawed when it comes to sales people. If one looks at the research cited in his book, it focused on short-term incentives, some as short as hours or minutes. Meta-analysis of well constructed research studies shows that longer term incentives (over 6 months) had a positive impact on sales people.

So what are the keys to effective sales compensation? We believe there are two:

  1. Align your sales compensation plan to your strategy so your sales people are incentivized to support actions that execute your strategy, which will then achieve your goal(s). BTW, this is a good idea for all compensation plans.
  2. Don’t change it … unless it isn’t working or your strategy changes. The approach you take to sales compensation will attract sales people who like to be compensated that way. If you keep it consistent, you will keep your sales people motivated. If it is truly strategically aligned, good things then happen.

Bottom line, as I was told when we took Lamaze classes when my son was to be born: choose the approach you like and find the book that supports it.

Or follow our advice and align compensation to your strategy and keep it consistent.

Mitch

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Adapt Or Die

CineplexWe’ve all heard the mantra and depending on our age, we have heard it for decades. We know it’s true. Look at Netflix destroying Blockbuster, which had destroyed the independent video rental stores. Look at Amazon destroying the big book stores and now threatening other retailers. The list goes on and on. Nothing new.

The demise of the traditional movie theater has also been predicted for several years now as well. The actual number of screens in the U.S. has almost doubled since 1987 but has been about flat for the last few years. (As an aside, the number of drive in movies has dropped by 2/3’s in that same time frame.) What has kept indoor movie theaters from going the way of Blockbuster, et al?

Partially the continued protection of the channel by the movie producers who give them release preference. However, that would not be enough in the long-term as all it takes is a few studios to break the mold and it would be over. No the theaters have adapted.

I was reminded of that continued adaptation while visiting a Cineplex in Saskatoon (of all places). Almost all the movies being shown and most coming out are in 3-D. Can’t (yet) get that experience at home. Some of the theaters, here and elsewhere, offer reserved seating and in theater dining. Making it a real date night (with added revenue for the theater).

Cineplex here in Canada has a corporate sponsor on their theaters, ScotiaBank. I expect to see that in the US soon (and it may be there already, just nowhere I’ve been recently). They promoted a new 4-Dx feature coming in the near future to Cineplex theaters. What is 4-Dx? A feature designed to give the viewer true sensory involvement with the action. The seats will move to make the viewer part of the action in the movie. They are going to produce sensory effects including smell, water, snow, etc. Can’t get that at home.

Prior to the start of the movie they had the viewers use an app to play a game to win loyalty points. Getting attendee involvement. (Fortunately they still ask you to turn your phone off before the movie starts.) They have also created a service where you can download/stream the movies once they are released and if you want to buy the movie you are watching when it comes out that is available at a discount. (Going after Netflix directly.)

The channel/industry is successfully adapting. Take a cue and make sure you do too.

Mitch

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Make Doing The Wrong Thing Hard

amazon.com-logoTo help prevent errors, a construct translated as “make doing  the wrong thing hard” has been around informally for many decades. It was formalized as part of the Toyota Production System by Shigeo Shingo and called poka-yoke in Japanese. This replaced the original name, baka-yoke, which translates as “idiot proofing.”

Many Lean Thinking professionals teach and incorporate this construct into processes. It was originally implemented in production systems. You see it in situations where two hands are required to run a machine, even though one would clearly be enough. By making the operator use two hands one can be sure that neither hand will be cut off by the machine.

I was reminded of its value recently while dealing with Amazon. Several months ago I attempted to buy a Scott stamp catalog from Amazon. It was not yet available, but I could pre-order, and it would be shipped when it was available in a “few months.” While waiting for the “few months” to go by, I got confusing updates as to when it would or would not ship. Finally, I was alerted that it was available to ship, so I went online to see if it was still on order so I would be sure to get it. I did not see it in my order queue. I assumed it had been canceled before so I re-ordered it.

I got two of them. Only needing one, I returned the second one. Amazon, as they do, promptly refunded my money. Well not all of it I came to find out. They charged me a 50% restocking fee on a $130 item that had been unopened. I get restocking fees, but I have never seen a 50% restocking fee.

I called Amazon customer service and the rep was polite, investigated, found I had made the error and told me she could not reverse the restocking fee. The conversation with her caused me to realize how I had made the mistake. Amazon provides your order history anytime you want to see it, but it is in history order. Unshipped items are in the queue based on when ordered. As the catalog had been ordered a few months before, it was way down in my queue and I had failed to see it was still there. (As an Amazon Prime member I am sure to order lots of items from them so I get my money’s worth from free shipping.)

In talking with the customer service rep, I made the suggestion that Amazon change their queue to show unshipped items first. She said she would pass it on. All done … well not yet.

I remembered writing a blog post about how Jeff Bezos reads emails sent to him and passes them on for action. I decided that he should know about my idea to make doing the wrong thing hard, so I sent him an email. The next day I got a response. Unfortunately, the response only focused on the restocking fee, which they decided to remove, but did not address my real issue, which was to change the process to make doing the wrong thing hard.

I thanked the person for removing my restocking fee, and reminded him that my real point was to have them make doing the wrong thing hard. We shall see if they take my advice.

Mitch

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They Started It, And They Still Missed It

dietpepsiPepsi recently announced the “return” of Diet Pepsi with aspartame. This caused a big to do on a recent conference call. Aspartame was removed from many diet drinks due to consumer concern about health issues. However, as Pepsi CEO, Indra Nooyi, is quoted upon the return of the original product: “What we did not anticipate is that there’s a group of consumers that absolutely loved the original Diet Pepsi.”

That’s amusing to me since they pushed Coke into reformulating its product many years ago and then Coke had to backtrack and reintroduce Classic Coke, and finally kill ‘New” Coke. I realize this is not a simple situation, since, apparently, a significant number of consumers don’t want Aspartame in their drinks, while a large number want “original” Diet Pepsi taste. Ah the dilemma.

However, here is the “shocker’ for me. (Unfortunately, I am not really shocked. Even in this day of alleged customer-centricity, this situation is still largely true.) Ms. Nooyi, “also conceded that the company misread the attachment of some consumers to the aspartame version.” Seriously? And it’s not like having two versions of Diet Pepsi is that much of an issue for the company given the close to a dozen versions of Pepsi now on store shelves.

Customer-focus is easy to espouse on earnings calls. Harder to execute since the consumer often has a different viewpoint than the efficient one the company would prefer.

Mitch

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A Brief Review of Deming’s 14 Points of Management

outofcrisisI as I noted last week, I was going through our archives and I found this review of Deming’s 14 points of management that Neil Reckon from out team put together a while back. These 14 points are from Deming’s 1982 book, Out of Crisis. Almost 25 years later, these ideas still resonate. Some are even “new” management fads today. And others have only gained lip service.

Origin of the 14 points. The 14 points are the basis for transformation of American industry. It will not suffice merely to solve problems, big or little. Adoption and action on the 14 points are a signal that the management intends to stay in business and aim to protect investors and jobs. Such a system formed the basis for lessons for top management in Japan in 1950 and in subsequent years.

The 14 points apply anywhere, to small organizations as well as to large ones, to the service industry as well as to manufacturing. They apply to a division within a company.

  1. Adopt the new philosophy. We are in a new economic age. Western management must awaken to the challenge, must learn their responsibilities, and take on leadership for change.
  2. Cease dependence on inspection to achieve quality. Eliminate the need for inspection on a mass basis by building quality into the product in the first place.
  3. End the practice of awarding business on the basis of price tag. Instead, mi
  4. Create constancy of purpose toward improvement of product and service, with the aim to become competitive and to stay in business, and to provide jobs.
  5. Minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust.
  6. Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease costs.
  7. Institute training on the job.
  8. Institute leadership. The aim of supervision should be to help people and machines and gadgets to do a better job. Supervision of management is in need of overhaul, as well as supervision of production workers.
  9. Drive out fear, so that everyone may work effectively for the company.
  10. Break down barriers between departments. People in research, design, sales, and production must work as a team, to foresee problems of production and in use that may be encountered with the product or service.
  11. Eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity belong to the system and thus lie beyond the power of the work force.

11a. Eliminate work standards (quotas) on the factory floor. Substitute leadership.

12. Eliminate management by objective. Eliminate management by numbers, numerical goals. Substitute leadership.

12a. Remove barriers that rob the hourly worker of his right to pride of workmanship. The responsibility of supervisors must be changed from sheer numbers to quality.

12b. Remove barriers that rob people in management and in engineering of their right to pride of workmanship. This means, inter alia, abolishment of the annual or merit rating and of management by objective.

13. Institute a vigorous program of education and self-improvement.

14. Put everybody in the company to work to accomplish the transformation. The transformation is everybody’s job.

Mitch

*Edwards Deming, Out of Crisis, Massachusetts Institute of Technology, Center for Advanced Engineering Study, Cambridge, MA., 1982

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Optimizing Your Marketing Communications Mix

money_in_crystalballOn those few occasions when I am in town for a full week or more, I often go through my “archives.” I found this gem tucked away in a folder that was mislabeled. While not earth shattering, it’s worth remembering.

How can you optimize marketing spending in any economy? It depends what you mean by marketing. (Now there’s a typical consultant’s answer.) Since most people who ask that question are referring to the promotion side of marketing, let’s focus there.

To achieve optimum results, you need to be effective and efficient. Effectiveness is doing the right thing. Efficiency is doing things right. An effective message helps the right prospects understand the value of becoming your customer. The wrong message, no matter how efficiently delivered, does no good at its best and damage at its worst. However, if you don’t make your effective marketing messages efficient, you can still spend too much money and suffer a competitive disadvantage.

So, you must first develop an effective message then work on efficiently delivering that message. First do the right thing, then do things right.

Mitch

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Dotcoms, Unicorns, Business Valuation and Dollar Shave Club

dollarshaveclubYesterday Unilever announced the intended purchase of Dollar Shave Club, an online razor and related men’s items merchant, for $1B. A few years ago I wrote about the hype surrounding this company. I would like to say that I am shocked by the purchase, but not really.

Dollar Shave Club has a self-reported 3.4MM members (up from 200,000 a few years ago). Those members are expected to generate a company projected $240MM in revenue in 2016. This represents about $70/customer. And the company has yet to make a profit, even at these revenue rates. Unilever is paying over $290/customer for the acquisition, plus the site and its position in the market. How does this make any sense?

To be fair, Unilever apparently had been a strategic investor in the company for some time, so it really isn’t costing them $1B, but it is still a LOT of money. How does the Board of Unilever justify spending $290/customer to acquire customers who spend on average $70/year? Is the rest of their revenue production system so bad that they can’t do better than this in other ways? Maybe not.

This deal, like many unicorn deals (start-ups with over a $1B valuation), make no sense to me. However, it may be that short-term revenue is critical to Unilever. They likely believe they can lower the costs of serving these customers. They can increase the customer base more rapidly than Dollar Shave Club has done before. Maybe so, but so what? How many more customers would they need to ever earn a decent return on their $1B investment?

Pressure to grow in the short-term drives too many bad decisions in my opinion. All that being said, congrats to Michael Dubin, the founder of Dollar Shave Club, on the over-priced sale and a contract to continue as CEO.

Mitch

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