REINVENTING THE ASSEMBLY LINE
Feb 1, 2001 12:00 PM,
Our sales representatives were highly inefficient because theywere responsible for performing non-sales functions such aspurchasing, project management and other administrative tasks.
By shifting territory management from a single rep to a team, weachieved great leaps in sales productivity, along with otherrewards.
Until the early 1900s, automobiles were made the old-fashionedway — with large amounts of expensive manual labor. Most carswere built from chassis to completion while standing in onelocation, with several factory workers and mechanics assigned toperform all job functions at that site. From a 21st-centuryperspective, the process was highly inefficient, making it soexpensive to build a car that only the well-to-do could afford one.According to the dogma of the day, that was the way it was done— why change?
Then came Henry Ford and other innovators such as Fred Olds, thefounder of Oldsmobile. After analyzing the inefficient process ofautomobile manufacturing, they came up with an alternativeapproach: the assembly line. The assembly line allowed workers tospecialize in just one or two functions, instead of individualworkers performing multiple jobs on one car at a time. This levelof specialization increased worker efficiency, cutting hundreds ofhours (and hundreds of dollars) from the cost of producing anautomobile. By specializing labor, the assembly line conceptforever changed the way the world manufactured products of allkinds.
THE TRADITIONAL MODEL
Like the automobile industry of the early 20th century, we alsohad inefficiency problems with our sales organization. Our salesforce used the usual concept of territory management to assignaccount responsibility. Each sales rep was assigned a specificgeographic territory. The rep’s mission was to personally take careof all business generated from their pre-defined area. There wereseveral problems with this traditional model of salesmanagement.
Organizational Inefficiencies. Our sales representatives werehighly inefficient because they were personally responsible forperforming numerous job functions in their assigned territory. Thisincluded non-sales functions such as purchasing, project managementand other administrative tasks.
In addition, since reps were responsible for all businessactivity in their territory, they ended up spending too much timetaking and processing small orders for existing clients. Although Iwas aware of the problem, I considered it a necessary part of thesales rep’s job. I never looked at the issue as a problem to beaddressed because I was trained to believe that booking these typesof orders went with the turf. Besides, if the reps didn’t take careof the small orders, who would?
It stands to reason that the more time you spend doing paperworkand taking care of existing accounts, the less time you haveavailable for selling new accounts. If you subscribe to the basicbusiness theory that you need new accounts to survive and prosper,then the territory-management scheme is a prescription fortrouble.
Preferential Focus on Existing Accounts. To maintain theirpersonal income levels, our sales reps followed the directive ofour compensation program, only selling projects that generatedstandard margin levels. In fact, our reps spent most of their timegoing after and milking existing accounts. Current accounts werethe target because they were awarded in a non-competitive,high-profit environment. Although business from our existingaccounts maintained profits in the short term, it did nothing toexpand our client base and set the table to boost future sales.
Avoiding New Projects. Since new accounts were highlycompetitive (resulting in substantially lower margins and lowercommissions), our sales reps decided not to go after them. Fromtheir perspective, the risk-reward ratio was poor.
Our traditional model of sales organization was very inefficientand failed to foster an environment for long-term growth andprofitability. Based on this knowledge, we embarked on a newprogram to increase sales productivity and the acquisition of newaccounts.
THE HUNTER-FARMER MODEL
To increase efficiency, we created a new“hunter-farmer” sales team to manage a specificterritory. The “hunter” was a senior sales rep who hadthe primary mission of pursuing new accounts. He/she also had theresponsibility of managing all activity from their assignedterritory.
The “farmer” had a completely different set ofduties. The farmer’s only mission was to take care of and growexisting accounts. The farmer was a less-experienced junior salesrep who brought good product knowledge and customer-relationsskills to her or his work.
Under our new plan, a hunter and a farmer were assigned as ateam to a specific territory. The territory was theirs to hunt,defend and cultivate. As the less-experienced member of the team,the farmer worked under the tutelage of the hunter, who providedon-the-job training that would eventually help the best farmersbecome hunters as opportunities arose.
By shifting territory management responsibility from a singlesales rep to a team, we achieved great leaps in sales productivity,along with other rewards. They included:
Increased New Business. We got phenomenal results by having thehunter concentrate on new accounts. Integrated with our newcommission plan, which issued high commissions for new business,the results were predictably good: Our new accounts businessexploded.
Three-fold Increase in Small Orders. With farmers spending amajority of their time cultivating existing accounts, we expected amodest increase in sales. Instead, small orders from existingaccounts nearly tripled. Of course, we asked ourselves why. Thereason was simple: Because the farmers were meeting with existingclients more often, the clients were releasing more orders that hadbeen “back-burnered.”
Increased Client Satisfaction. When a client has a need, whetherit’s a service problem or an order, who is the first person theycall? The sales representative! He or she may be the only personthey know at your company. Unfortunately for clients, most goodsales reps are usually out in the field working on newprospects.
With the hunter-farmer team, our clients came to know at leasttwo people in our company. The Hunter-Farmer program doubled theprobability that a calling client would actually talk to a personthey knew. Since this led to increased problem resolution, clientsexperienced a higher level of satisfaction.
Training Ground for New Hunters. Working under the directsupervision of the experienced hunters, our farmers were constantlyin training to become hunters. We were thus able to develop a cadreof farmers with two to four years of training, who could fill thevoids when hunters left or when new territories opened up as weexpanded our company.
The sales organization plan we adopted was not developed byMBAs, nor was is it based on a series of complex formulas. Wedeveloped it based on proven theories of labor productivity goingback to the days of Ford and Olds. We just adapted those approachesto the needs of our company and culture.
This article is an excerpt from Alan Kruglak’s new book, SalesCompensation, The Hunter-Farmer Way (available in March 2001). Thisbook provides a step-by-step guide to creating the ultimatecompensation program to drive the sales process. Universal toalmost any business in the systems integration industry (audio,fire, security, etc.), this book details how to design andimplement the hunter-farmer sales compensation program (with sampletemplates); increase sales productivity; establish quotas and salesterritories; and determine the right sales compensation incentives.Finally, the book provides new pricing strategies that will helpany business owner achieve higher gross margins. For moreinformation, please call ARK Solutions at 301/365-7522 or visit theWeb site at www.arksolutions.net.