By far the biggest challenge facing today’s manufacturing revenue leaders is re-orienting customer-facing resources around better-informed, higher value and increasingly more demanding accounts and customers. That’s just one key finding from management consulting firm Alexander Group’s most recent manufacturing study, focused on challenges and initiatives to drive growth through sales, marketing and service functions.
The research validated these five major themes shaping manufacturing revenue models.
- Re-alignment of sales forces around highest priority customers
- Digital investment
- Struggle for talent
- Pay-for-performance in compensation
- Professionalizing sales operations
Ninety-seven percent of executives said that realignment of sales forces was a top priority, but only 30% felt they were effectively executing against it. Many have not done the basic work of segmenting customers and prospects and have yet to gain an understanding of what types of products, solutions and service expectations top customers value. Fewer still had re-oriented their teams around the right mix of roles and selling channels (direct, indirect, inside and digital) to more effectively cover customer accounts.
One aspect of better customer coverage is an investment in digital access channels. Three out of 4 leaders interviewed are investing in digital sales and marketing channels to not only drive more leads through integrated marketing efforts, but to also increase end-to-end e-commerce sales, specifically for transactional sales. Companies that are investing in digital have strong CEO mandates to do so and are expecting digitally supported sales to make up 70% higher share of total revenue and over 10% of new leads by 2020.
With significant opportunities to increase customer alignment and grow revenue through digital channels comes the challenge of finding and retaining the right talent. Attrition rates are up to 12% and climbing for core sales roles. Nearly 100% of executives interviewed cite talent as a key concern in achieving their growth objectives. This is driven by both macro hiring trends and a need for more advanced skills from sellers. In particular, many manufacturers are expanding key and national account teams and need sellers that can engage senior executives and ably discuss business outcomes, not just product features.
In conjunction with initiatives to attract and retain top talent, executives are re-aligning compensation plans to differentiate and reward top performers. Actual total pay is up more than 5% annually over the last three years for territory and key account managers. Many leaders complain that their traditional compensation plans had been too conservative, and reporting issues made it difficult to always correlate sales performance with compensation. In response, leading companies are:
- Investing in CRM and back office systems to better track individual sales opportunities
- More clearly defining which customer-facing roles have the most influence on growth
- Increasing both total incentive available for all core sellers and the amount of incentive that top performers can earn
- Utilizing strategic growth measures like new account sales, to drive more alignment with business strategy
Despite the tremendous opportunities, and new complexities, that commercial teams face, less than a third of manufacturers are supporting the revenue function with dedicated and centralized sales operations / enablement. Several executives interviewed were not even familiar with sales operations, namely a dedicated team, aligned primarily with sales, which focuses on improving selling productivity and performance. Sales operations teams may be tasked with key mandates, including:
- Managing and optimizing sales compensation programs
- Continuously assessing and removing bottlenecks in the sales process
- Providing a bridge to marketing and finance to help sales teams adapt to new market strategies
- Supporting reporting and analytics, including CRM
- Optimizing territories and quotas
Dedicated sales operations teams are a must for manufacturers who want to take advantage of growth opportunities. In fact, manufacturers that have dedicated sales operations teams in place saw 31% higher revenue growth, 17% more revenue from new customers, and 23% lower expense-to-revenue ratios in 2017.
All-in-all, both the quantitative and qualitative feedback gathered paints a greater picture of opportunity than distress in manufacturing revenue models. But there is a clear, and likely growing, disparity between revenue leaders who are actively embracing fundamental changes in technology, customer expectations, and talent and those who are still firmly entrenched in legacy models centered around product, relationships and one channel to market. Both technology and inevitable economic cycles can wreak havoc on outdated revenue models, and as the tides turn, a large number of manufacturers may find themselves ill-equipped to drive profitable growth.
John Drosos is a principal in the Alexander Group Chicago office. He serves as a national lead for the firm’s Manufacturing and Distribution practices and the Midwest lead for the Technology practice. John has been with the firm since 2006 and brought with him diverse experience in strategy consulting, general management and technology consulting. John is a key thought leader on complex sales model transformations, global coverage strategies, productivity and analytics. He has also helped shape the firm’s talent recruitment and development practices, playing a key role in the rapid and consistent growth of our Midwest consulting practice.