Sales Management Training Tips:
Leading through uncertainty
The range of possible futures confronting business is great.
Companies that nurture flexibility, awareness, and resiliency are
more likely to survive the crisis, and even to prosper.
The future of capitalism is here, and it’s not what any of us
expected. With breathtaking speed, in the autumn of 2008 the credit
markets ceased functioning normally, governments around the world
began nationalizing financial systems and considering bailouts of
other troubled industries, and major independent US investment banks
disappeared or became bank holding companies. Meanwhile, currency
values, as well as oil and other commodity prices, lurched wildly,
while housing prices in Spain, the United Kingdom, the United
States, and elsewhere continued to slide.
As consumers batten down the hatches and the global economy slows,
senior executives confront a more profoundly uncertain sales
management environment than most of them have ever faced.
Uncertainty surrounds not only the downturn’s depth and
duration—though these are decidedly big unknowns—but also the very
future of a global economic order until recently characterized by
free-flowing capital and trade and by ever-deepening economic ties.
A few months ago, the only challenges to this global system seemed
to be external ones like climate change, terrorism, and war. Now,
every day brings news that makes all of us wonder if the system
itself will survive.
The task of business leaders must be to overcome the paralysis that
dooms any organization and to begin shaping the future. One starting
point is to take stock of what they do know about their industries
and the surrounding sales management environment; such an
understanding will probably suggest needed changes in strategy. Even
then, enormous uncertainty will remain, particularly about how
governments will behave and how the global real economy and
financial system will interact. All these factors, taken together,
will determine whether we face just a few declining quarters, a
severe global recession, or something in between.
Uncertainty of this magnitude will leave some leaders lost in the
fog. To avoid impulsive, uncoordinated, and ultimately ineffective
responses, companies must evaluate an unusually broad set of
macroeconomic outcomes and strategic responses and then act to make
themselves more flexible, aware, and resilient.Strengthening these
organizational muscles will allow companies not only to survive but
also to seize the extraordinary opportunities that arise during
periods of vast uncertainty. It was during the recessionary 1870s
that Rockefeller and Carnegie began grabbing dominant positions in
the emerging oil and steel industries by taking advantage of new
refining and steel production technologies and of the weakness of
competitors. A century later, also in a difficult economy, Warren
Buffett converted a struggling textile company called Berkshire
Hathaway into a source of funds for far-flung investments.
What we know
The financial electricity that drives our global economy is not
working well. Turning it back on isn’t just a matter of flicking a
switch, as central banks and governments have tried to do by
providing liquidity, guaranteeing debt, and injecting capital into
banks. We must repair the grid itself significantly, and this will
require coordinated global action.
By the grid, we mean the global capital market, which evolved over a
35 year period following the breakdown of the Bretton Woods accord,
in the 1970s. No one designed the global capital market, but it has
been a boon to humanity, stimulating globalization and growth by
enabling the free international flow of capital and trade. The
financial crisis of 2008 severely damaged this useful system.
Through greed, neglect, or ignorance, the participants abused it
until
they broke some of its basic mechanisms.
The implications are far reaching. Most obviously, congestion in the
global capital market is exacerbating the US domestic credit crisis.
That crisis has spread globally, hitting Europe especially hard.
Banks until recently have been scrambling for deposits to replace
sources of funding such as direct-issue commercial paper,
medium-term notes, and asset-backed paper. The search for deposits
is required to finance existing loans, and borrowers will need
significantly more of them because all but the strongest have, like
the banks, lost access to the securities markets. The US government,
in particular, has aggressively tried to address this problem
through huge liquidity programs, such as the purchase of mortgage-
and other asset-backed securities. But it remains to be seen how
effective those efforts will be in mitigating the credit crunch.
The global capital market crisis worsens this credit crunch by
sending into reverse the dynamic of cross-border investment and
trade flows. A dollar of capital must finance every dollar of trade,
so the global capital market has stimulated the international
exchange of goods and services. It has facilitated cross-border
investments—in intellectual property, talent, brands, and
networks—that help economies and companies grow and profit, and it
has enabled the companies that make such investments to repatriate
their profits. In short, global integration and growth will revive
only if the global capital market does.
Yet it has sustained a body blow that will have repercussions for
years, even if international leaders make the necessary long-term
adjustments.
The changing role of government
Since September 2008, governments have assumed a dramatically
expanded role in financial markets. Policy makers have gone to great
lengths to stabilize them, to support individual companies whose
failure might pose systemic risks, and to prevent a deep economic
downturn. We can expect higher tax rates to pay for these moves, as
well as for the reregulation of finance and many other sectors. In
short, governments will have their hand in industry to an extent few
imagined possible only recently.
That’s not all. Protectionism and nationalism will probably feature
more prominently in policy debates. We may see not only old-style
populist anger against business, high executive compensation, and
layoffs but also the emergence of authoritarian populist movements.
Already-dilatory trade discussions will encounter renewed
resistance. Although greater global coordination is sorely needed,
national political pressures will make it hard to achieve. All this
will
constrain some business activities but also opens the door to new
ventures that depend upon collaboration between the public and
private sectors.
Deleveraging
The cheap credit of the past few years most likely won’t return for
a long time. For many households, this will mean reducing
consumption and postponing retirement; for financial
institutions—increasingly, bank holding companies—much higher
capital requirements, less freedom to operate and innovate, and
probably lower profitability; for governments, even more limited
resources for health care, education, pensions, infrastructure, the
environment, and
security; and for corporations, a different role for capital. More
broadly, for many companies the high returns and rapid growth of
recent years rested on cheap credit, so deleveraging means that
expectations of baseline profitability and economic growth, as well
as shareholder returns, must all be seriously recalibrated.
New business models and industry restructuring
Companies engaging with the capital markets will encounter funders
who are less tolerant of risk, a reduced ability to hedge it, and
greater volatility. Hardest hit will be business models premised on
high leverage, consumer credit, large customer-financing operations,
or high levels of working capital.
Businesses with long or inflexible production cycles or very
long-term investment requirements will find it especially difficult
to manage their funding. Some won’t make it, so industries will
restructure. Corporate leaders already recognize this: in a McKinsey
Quarterly executive survey launched the day after the US
presidential election, 54 percent of the respondents expected their
industries to consolidate.
These are all truths we know. They require a significant shift in
thinking about government as a stakeholder, the value talent creates
when it is harder to leverage, how to conserve capital, and
strategies for sound risk taking—among other things.
What we don’t know
Yet there is much that we don’t know, and won’t for some time: how
well will governments work together to develop effective regulatory,
trade, fiscal, and monetary policies; what will these responses mean
for the long-term health of the global capital market; how will its
health or weakness influence the pace and extent of change in areas
such as the economic role of government, financial leverage, and
business models; and what will all this imply for globalization and
economic growth?
Although these questions won’t be answered in the short or even the
medium term, decisions made in the immediate future are critical,
for they will influence how well organizations manage themselves now
and compete over the longer haul. The winners will be companies that
make thoughtful choices—despite the complexity, confusion, and
uncertainty—by assessing alternative scenarios honestly, considering
their implications, and preparing accordingly.
In particular, organizations must think expansively about the
possibilities. Even in more normal times, the range of outcomes most
companies consider is too narrow.
The assumptions used for budgeting and business planning are often
modest variations on baseline projections whose major assumptions
often are not presented explicitly. Many such budgets and plans are
soon overtaken by events. In good times, that matters little because
companies continually adapt to the sales management environment, and
budgets usually build in conservative assumptions so managers can
beat their numbers.
But these are not normal times: the range of potential outcomes—the
uncertainty surrounding the global credit crisis and the global
recession—is so large that many companies may not survive. We can
capture this wide range of outcomes in four scenarios.
To see them in perspective, consider some results of the McKinsey
Global Institute’s research. This research, focusing on the United
States, the center of the storm, suggests that if capital markets
rebound quickly, GDP would be 2.9 percentage points lower than it
would have been if trend growth had continued
over the next two years. If financial markets take longer to
recover, as the middle two scenarios envision, US GDP growth could
fall 4.7 to 6.7 percentage points from trend over the same period.
At the “long freeze” end of the spectrum, Japan’s “lost decade”
shaved 18 percentage points from GDP compared with its previous
growth trend.
Regenerated global momentum
In the most optimistic scenario, government action revives the
global credit system—the massive stimulus packages and aggressive
monetary policies already adopted keep the global recession from
lasting very long or being very deep. Globalization stays on course:
trade and capital flows resume quickly, and the developed and
emerging economies continue to integrate as confidence rebounds
quickly.
Battered but resilient
In the second scenario, government-wrought improvements in the
global credit and capital market are more than offset—for 18 months
or more—by the impact of the global recession, which leads to
further credit losses and to distrust of cross-border
counterparties. Although the recession could be longer and deeper
than any in the past 70 years, government action works, and the
global capital and credit markets gradually recover. Global
confidence, though shaken, does rebound, and trade and capital flows
revive moderately. Globalization slowly gets back on course.
Stalled globalization
In the third scenario, the global recession is significant, but its
intensity varies greatly from nation to nation—in particular, China
and the United States prove surprisingly resilient. The integration
of the world’s economies, however, stalls as continuing fear of
counterparties makes the global capital market less integrated.
Trade flows and capital flows decline and then stagnate. The
regulatory regime holds the system together, but various governments
overregulate lending and risk, so the world’s banking system becomes
“oversafe.” Credit remains expensive and hard to get. As attitudes
become more defensive and nationalistic, growth is relatively slow.
The long freeze
Under the final scenario, the global recession lasts more than five
years (as Japan’s did in the 1990s) because of ineffective
regulatory, fiscal, and monetary policy. Economies everywhere
stagnate; overregulation and fear keep the global credit and capital
markets closed. Trade and capital flows continue to decline for
years as globalization goes into reverse, and the psychology of
nations becomes much more defensive and nationalistic.
Leading through uncertainty
These descriptions are intentionally stylized to enliven them; many
permutations are possible. Scenarios for any company and industry
should of course be tailored to individual circumstances. What we
hope to illustrate is the importance for strategists of considering
previously unthinkable outcomes, such as the rollback of
globalization. Unappealing as three of the four scenarios may be,
any company that sets its strategy without taking all of them into
account is flying blind.
So executives need a way of operating that’s suited to the most
uncertain sales management environment since the 1930s. They need
greater flexibility to create strategic and tactical options they
can use defensively and offensively as conditions change. They need
a sharper awareness of their own and their competitors’ positions.
And they need to make their organizations more resilient.
Most companies acted immediately in the autumn of 2008 when credit
markets locked up: they cut discretionary spending, slowed
investment, managed cash flows aggressively, laid off employees,
shored up financing sources, and built capital by cutting dividends,
raising equity, and so forth. While prudent, these actions probably
won’t produce the short-term earnings that analysts expect, at least
for most companies. In fact, it’s time they abandoned the idea that
they can reliably deliver predictable earnings. Quarterly
performance is no longer the objective, which must now be to ensure
the long-term survival and health of the enterprise.
More flexible
Companies must now take a more flexible approach to planning: each
of them should develop several coherent, multipronged
strategic-action plans, not just one. Every plan should embrace all
of the functions, business units, and geographies of a company and
show how it can make the most of a specific sales management
environment.
These plans can’t be academic exercises; executives must be ready to
pursue any of them—quickly—as the future unfolds. In fact, the broad
range of plausible outcomes in today’s sales management environment
calls for a “just in time” approach to strategy setting, risk
taking, and resource allocation by senior executives. A company’s 10
to 20 top managers, for example, might have weekly or even daily
“all hands on deck” meetings to exchange information and make fast
operational decisions.
Greater flexibility also means developing as many options as
possible that can be exercised either when trigger events occur or
the future becomes more certain. Often, options will be offensive
moves. Which acquisitions could be attractive on what terms, for
instance, and how much capital and sales management capacity would
be required? What new products best fit different scenarios? If one
or more major competitors should falter, how will the company
react? In which markets can it gain share?
As companies prepare for such opportunities, they should also create
options to maintain good health under difficult circumstances. If
capital market breakdowns make global sourcing too risky, for
example, companies that restructure their supply chains quickly will
be in much better shape. If changes in the global economy could make
a certain kind of business unit obsolete, it’s critical to finish
all the preparatory work needed to sell it before every company with
that kind of unit reaches the same conclusion.
A crisis tends to surface options—such as how to slash structural
costs while minimizing damage to long-term competitiveness—that
organizations ordinarily wouldn’t consider. Unless executives
evaluate their options early on, they could later find themselves
moving with too little information or preparation and therefore make
faulty decisions, delay action, or forgo options altogether.
More aware
As problems with credit destroy and remake business models and
market volatility whipsaws valuations, companies desperately need to
understand how their revenues, costs, profits, cash flows, risks,
and balance sheets will fare under different scenarios. With that
information, executives can plan for the worst even as they hope for
the best. If the recession lasted more than five years, for example,
could the company survive? Is it prepared for the bankruptcy of
major customers? Could it halve capital spending quickly? The
answers should help companies to be better prepared and to
recognize, as early as possible, which scenario is developing. That
is critical knowledge in a crisis, when lead times disappear quickly
and companies can seize the initiative only if they act before the
entire world understands the probable outcome.
Better business intelligence promotes faster, more effective
decision making as well. Companies can often gain insights into the
potential moves of competitors by weighing news reports about their
activities, stock analyst reports, and private information gathered
by talking to customers and suppliers.
Such intelligence is always important; in a crisis it can make the
difference between missing opportunities to buy distressed assets
and leaping in to snare them. To get this kind of business
intelligence, companies need a network, typically led by someone
with strong support from the top. This executive’s mandate should
include creating “eyes and ears” across businesses and geographies
in particular areas of focus (such as the competition’s response to
the crisis), as well as gathering and exchanging information. A
network is critical because information is most useful if it moves
not just vertically, up and down the organization, but also
horizontally. Sales management, for example, should exchange
knowledge about what’s working in economically distressed regions so
that employees can help each other.
Assembling bits of information, facts, and anecdotes helps companies
to make sense of what’s happening in an industry. Say, for example,
that a supplier says it has no difficulties with funding, though
first-hand knowledge from other sources indicates that the company
is struggling to meet its payroll. Such warnings can allow
executives to get a full picture much more quickly than they could
by sitting in their offices and interacting only with direct
subordinates.
More resilient
A crisis is a chance to break ingrained structures and behaviors
that sap the productivity and effectiveness of many organizations.
Such moves aren’t a short-term crisis response—they often take a
year or more to pay dividends—but are valuable in any scenario and
could help a company survive if hard times persist. Although
employees may dislike this approach, most will understand why sales
management aims to make the organization more effective.
This may, for example, be the time to destroy the vertical
organizational structures, retrofitted with ad hoc and matrix
overlays, that encumber companies large and small. Such structures
can burden professionals with several competing bosses. Internecine
battles and unclear decisions are common. Turf wars between product,
sales, and sales managers kill promising projects. Searches for
information aren’t productive, and countless hours are wasted on
pointless e-mails, telephone calls, and meetings.
Experience shows that streamlining an organization to define roles
and the way those who hold them collaborate can greatly improve its
effectiveness and decision making. When jobs must be eliminated, the
cuts mostly reduce unproductive complexity rather than valuable
work. As Matthew Guthridge, John R. McPherson, and William J. Wolf
point out in “Smart cost-cutting in the downturn: Upgrading talent”
(available on December 4), Cisco took that approach in shedding
8,500 jobs in 2001. When the company redesigned roles and
responsibilities to improve cooperation among functions and reduce
duplication of effort, talented employees were more satisfied in a
more collaborative workplace.
In fact, many functional areas offer big opportunities: greater
effectiveness, lower fixed costs, freed-up capital, and reduced
risk. This could be the moment to redefine and reprioritize the use
of IT to increase its impact and cut its cost. Other companies could
seize the moment to control inventory; to reexamine their cash flow
management, including payments and receivables; or to change the mix
of marketing vehicles and sales management models in response
to the rising cost of traditional media and the growing
effectiveness of new ones
Source: DECEMBER 2008 • Lowell Bryan and Diana Farrell
http://www.mckinseyquarterly.com/Leading_through_uncertainty_2263
Subject: Sales Management
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