Mansfield Build Advantage


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Mansfield Build Advantage

  1. 1. BUILDING ACOMPETITIVE ADVANTAGEwith Sales Force Outsourcing
  2. 2. “Strategic Outsourcing: It is an indispensable tool for world-class companies, allowing them to improve their products and services, lower their costs, and enhance their flexibility.” iSales Force Outsourcing is not a new concept.What is new, however, is the fundamental shift to a longer-term, more strategic view of Sales and MarketingOutsourcing that integrates sales force outsourcing as a key element in an overall transformation of Sales andMarketing organizations.Intense competition and shifting market forces are compelling companies to re-engineer their sales and marketingfunctions, to create more effective growth engines. One key transformation strategy is to expand the use of Salesand Marketing Outsourcing to improve marketing productivity, expand sales capabilities and reduce costs. Thistrend is particularly significant among business-to-business companies – a sector that has routinely outsourcedsome sales functions to third parties.The decision to outsource is frequently driven by cost savings because outsourced functions are cost centers likeManufacturing, Information Technology and Human Resources. The Outsourcing Institute, an independent associa-tion of companies involved with outsourcing, surveyed over 2,000 member companies who outsource to determinethe Top 10 Reasons Companies Outsource: TOP 10 REASONS Companies Outsource 1. Reduce and control operating costs 6. Accelerate reengineering benefits 2. Improve company focus 7. Function difficult to manage/out of control 3. Gain access to world-class capabilities 8. Make capital funds available 4. Free internal resources for other purposes 9. Share risks 5. Resources are not available internally 10. Cash infusionSales and Marketing outsourcing, however, is the exception. Since Sales and Marketing is primarily focused ondriving revenue, decisions to outsource are primarily driven by the need to profitably drive revenue growth. Over thepast 15 years, studies have consistently found that companies have shifted to outsourced sales teams to generateincreased revenue growth and higher levels of customer satisfaction while reducing costs. Today, many companiesare using Sales and Marketing Outsourcing as a core strategy to gain competitive advantage. 1
  3. 3. What is BackgroundSales Force Sales team effectiveness is critical to the profitability of all companies. Three factors play a critical role in sales team profitability: sales force size,Outsourcing? allocation and productivity. Companies often focus on these three related areas to improve sales performance:Simply Stated, Sales ForceOutsourcing is hiring an external 1. Increase the size of the sales teamorganization to sell for a company 2. Optimize allocation of the sales teamas an expansion of their own salesforce or as its sole sales force. 3. Improve productivity with more effectiveOutsourced sales forces function management, more information, better tools,exactly like in-house sales teams sales training or higher quality salespeople– they have quotas, report results,and are compensated for achiev- Some companies focus on making internal changes to improve sales teaming sales goals. Outsourced sales effectiveness. Other organizations have started to focus on transforming theirteams are usually indistinguishable Sales and Marketing Organization and integrating third party resources. Salesfrom the firm’s own sales reps and representative roles are similar across broad industry sectors, and outsourcingdevelop direct customer relation- this function is relatively easy.ships on behalf of their client.Sales Force Outsourcing can beused for specific sales programs,campaigns, new product launchesor to expand into new territories.Outsourced sales teams are alsofrequently used by start-up firmswho are in the high-growth, newcustomer acquisition phase ofmarket development.Sale Force Outsourcing is oftenaccompanied by a full portfolio of High-growth start-up firms and mid-sized to large companies have found thatoutsourced services: CRM systems, Sales Force Outsourcing integration is one way to increase productivity andsales training, business process sales revenues while lowering costs. Sales Force Outsourcing benefits alsodesign and optimization, market- include efficiency gains, expertise, speed, flexibility and capital savings. Theing strategy consulting, and other result is that Sales Force Outsourcing is rapidly replacing in-house sales teams,services. the use of indirect sales partners and independent sales representatives. Some newer companies have never even established in-house direct sales and have outsourced all of their related sales functions including marketing strategy, lead management, and strategic partnership development. 2
  4. 4. The emergence of strategic outsourcingInitially, most outsourcing decisions were tactical – a way to reduce costs, expandcapacity to handle a specific project, fill a temporary gap or gain access to specialskills. Companies routinely outsourced Advertising, Data Analysis, Lead Generation,Field Sales and Strategic Planning. In the past decade, however, the main driver ofSales and Marketing Outsourcing shifted to strategic outsourcing. The mostimportant reason companies outsource sales and marketing is to increaserevenue and acquire new customers.Primary driver of Sales and Marketing Outsourcing is to improve marketing effectivenessand drive profitable sales growth. Common Strategic Sales and Marketing goals: • Introduce new products and services • Increase new customer acquisition rates • Improve market coverage and distribution • Improve promotional effectiveness • Expand into new markets • Provide superior competitive positionSecondary benefits of Sales and Marketing Outsourcing are efficiency objectives,the most important: • Increase speed to market • Improve customer service and processes • Improve product availability and visibility • Reduce sales and marketing costs • Rapid implementation of marketing programsMeasuring effectiveness versus cost savingsFirms initially turned to Sales Force Outsourcing in an effort to capture cost savings. Transaction cost analysis was thedominant method of identifying cost efficiencies that could be achieved with outsourcing. Over time, firms shifted tousing measures of effectiveness for decision support. The most common approach for quantifying sales effectivenessis to look at classic sales productivity measures – revenue growth, close rate, market share, reorder rates, averageorder, sales profitability, ROMI (Return on Marketing Investment) and so on.Other techniques have emerged that provide more insight into salesforce outsourcing strategy. Resource Analysis, for example, is usedto explore the capacity of specialized outsourced capabilities as apotential source of value creation.Even though cost savings is not the most important reason forcompanies choosing to outsource Sales and Marketing functions,it is a significant benefit. Full Sales Force Outsourcingtypically saves 25% to 50% in costs over onsite teamsand traditional outsourcing models like working throughmanufacturers’ reps. Although the benefits from costimprovement are compelling, they are just part of thefinancial gains from building a more competitivebusiness model. 3
  5. 5. Determining the true cost of your sales organizationCompare the costs versus benefits of sales force options. There are different cost structures for in-house versusoutsourced sales forces – some more controllable than others.Most companies have a difficult time determining the true costs of their in-house sales team. Typically, sales expensesare mixed with administrative expenses. In addition, support personnel and overhead costs are often shared resourcesthat are challenging to allocate and may not be able to be eliminated if all or some sales functions are outsourced. Thebest approach is to spend some time tracking and analyzing how shared resources are used, since employee estimatesmay not be accurate or complete.New models for Sales and Marketing OrganizationsSelling increasingly more complex products and services, and the associated customer demands, requires more agilesales strategies and more sophisticated, technically proficient field sales teams. Solution selling, for example, is nolonger an optional strategic advantage, it is a requirement. Meeting the needs of high-demand buyers requirescollaboration across functions and more technical support for field sales teams.At the same time, Sales Force Outsourcing has become a more significant part of many companies’ Sales and Marketingorganizations. The result is four basic Sales and Marketing Business Models that incorporate Sales Force Outsourcinghave emerged – two tactical business models and two newer strategic transformation models: 1. Project Sales Outsourcing (tactical) 2. Functional/Task Sales Outsourcing (tactical) 3. Full Sales Force Outsourcing (strategic transformation) 4. Integrated Sales Team (strategic transformation)Project Sales Outsourcing is the most discrete and requires the least complex analysis. The other three outsourcingbusiness models require more complex analysis. 1 Project Sales Outsourcing Project Sales Outsourcing a company works with a third party to drive a specific project. Typical projects include: • New product launch • New customer acquisition campaigns • New market entry • Accelerate growth in a rapidly growing business by expanding the sales team • Expansion into a new territory without adding employees. • Increase share in underserved industry • Add seasonal sales professionals to deal sectors or territories with periods of high volume or fill staffing gaps. • Capture missing key opportunities with sector specialists In some cases, companies have several possible revenue growth opportunities and work with a third party Sale Force Outsourcing firm to evaluate market potential and risk of each possible project, and then pursue the projects with the greatest probable market opportunities. The evaluation process needs to be comprehensive and include an evaluation of competition, market risks, estimated customer acquisition rates, revenue and margin potential, along with sales and market penetration costs. 4
  6. 6. 2 Functional/Task Sales Outsourcing (tactical) In many cases, particularly in larger companies, specific sales and marketing functions and tasks are outsourced. Commonly outsourced sales functions include: • Strategy and market planning. • Sales of particular product or service lines. • Lead generation and lead qualification. • Highly specialized functions – CRM systems, market analysis and sales training and • Sales to particular customer segments motivation. – niche segments, territories or sectors that are difficult to reach or are culturally very different. Most companies tend to outsource functions and activities that can be performed by a third party cheaper, better and/or faster. Certainly, it is essential to focus on the cost factors of outsourcing decisions, but a more robust analysis will increase the odds of making the best decision about which functions to outsource. A detailed analysis and careful benchmarking of costs and productivity improvement potential which combines cost-benefit analysis, core competency identification and strategic skills gap analysis can result in creating a Sales and Marketing business model that will provide a sustainable competitive advantage. It is essential to identify the functions that create a firm’s strategic advantage but not to limit the business model to a simplistic rule of outsourcing Non-Core functions and in-sourcing all Core functions. Often the ideal business model is to outsource a combination of Core and Non-Core activities and create a strategic business model that builds a competitive advantage by combining the strengths of a company with the expertise of a third party. Core and Non-Core Activities The first step in optimizing a Sales and Marketing organization is to identify Core Activities, the functions that provide a competitive advantage – and Non-Core Activities, the functions that are essential to the business model but do not provide a completive advantage. Core/Non-Core Activity Identification is used to identify which sales and marketing activities are core to differentiating a company and providing a competitive advantage. Generally, Core Activities should be subject to a careful strategic analysis prior to outsourcing while Non-Core Activities can just be analyzed from a cost and service level standpoint. In evaluating Core Activities, it is essential to determine the best way to optimize these functions to build upon a company’s strengths and minimize points of vulnerability. Strategic Skills Gap Analysis This process involves identifying opportunities to differentiate a company and create a competitive advantage by acquiring new core competencies. In some cases, these Core activities are outsourced because it is the fastest and most cost-effective way to access a new capability. 5
  7. 7. Evaluation and Sourcing The results of all three analyses can be combined into a decision table. Some activities should probably be retained in-house. Other activities should probably be outsourced. The remaining activities should be allocated by other factors including speed to market/delivery. Prior to outsourcing specific activities, Functional/Task Sales Outsourcing should be compared to Full Sales Force Outsourcing. Existing Functions New Strategic and Activities Capabilities Core Non-Core Financial Desired Quality Less expensive Probably Outsource Probably and and Service outsourced outsource outsource Level available Quality/ outsourced More expensive In-source Probably In-source Service outsourced In-source* Level Desired Quality Less expensive In-source, but determine if capability can and Service outsourced be developed with outsourcing partner Evaluation Level not available More expensive In-source Probably In-source outsourced outsourced In-source* Compare Functional/Task Sales Outsourcing to Full Sales Force Outsourcing * Examine in-house cost analysis to make sure no major costs were omitted; validate specifications used for vendor bit are identical to in-house specifications. Consider negotiating pricing with vendor.3 Full Sales Force Outsourcing (strategic transformation) For many companies “Lead to Close” outsourcing is the most effective and efficient way to accelerate growth and reduce sales and marketing expenses. Full Sales Force Outsourcing is having a third party be a company’s sales force. Instead of hiring, training and supporting a sales force on the company payroll, many firms save money and increase sales productivity by outsourcing their entire sales division, including many associated management and support functions. Full Sales Force Outsourcing differs from contract sales, working with distributors or value added resellers because the sales representatives are dedicated to selling one company’s products and/or services and are fully accountable for their actions. The client company gains the benefits of having a dedicated sales force along with the benefits and expertise of a third party provider who is focused solely on sales. In some cases the relationship between the client company and their sales agency can be based on shared risk. In other cases the outsourcer is paid for all of their activity similar to a hired direct sales force, but the outsourcer provides speed, agility, experience and can leverage existing relationships. Full Sales Outsourcing requires direct recruitment of sales personnel with specific backgrounds for each client and sales campaign along with sales support services – marketing, strategic planning, lead management and CRM systems – along with sales management. Outsourcing firms provide regular reports on sales results, pipeline status and other activities that benchmark revenue generation and customer relationships. 6
  8. 8. 4 Integrated Sales Team (strategic transformation) The newest innovation in sales team optimization is Integrated Sales Teams. This is the creation of a truly integrated organization where corporate employees and outsourced sales force members are fully integrated into one organization. The hiring relationship of the Integrated Sales Team is not an important factor to either the team members or the clients. Strategic Outsourcing Analysis is used to look at the entire Sales and Marketing operation and builds a comprehensive outsourcing strategy in which the optimized combination of in-house and outsourced functions are identified and business processes are implemented that achieve the company’s sales and marketing goals in the most effective and efficient manner. Outsourcing Leaders Over 20% of business-to-business sales in the United States – across every sector – are made by outsourced sales professionals. Many technology companies make significant use of sales force outsourcing. Intel, for example, uses outside sales organizations to sell products in markets where its inhouse sales force lacks experience or has few relationships. About 70% of all CPG (Consumer Package Goods) companies retail sales revenues in the United States are handled by outsourced sales representatives. A major 2006 study conducted for the ASMC Foundation revealed that sales outsourcing saved companies approximately 30% of cost and resulted in higher levels of customer satisfaction. “According to the research findings, most CPG companies believed that SMAs (Sales and Marketing Agencies) performed transactional services at nearly 30 percent lower cost than direct sales teams. Lower transactional costs for SMAs stemmed from scale advantages of the syndicated business service models wherein SMA overheads and operating costs are spread over multiple products and manufacturers. Their costs were also lower because SMAs were better able to cope with the fluctuations and “peaks and valleys” of work force demand…”ii This study also found that customers considered outsourced sales representatives far superior in developing and managing relationships, new product introductions, and a wide range of other sales and service activities. The pharmaceutical industry has shifted over 80% of field sales to sales force outsourcing and contract sales organizations. This transition has enabled pharmaceutical firms to meet their revenue goals while dramatically reducing selling costs. In 2008, Merck cut about 15% of its U.S. sales force then brought in outsourced sales representatives. Merck spokeswoman Amy Rose told Dow Jones Newswires that... “rather than recruit, hire or keep full-time representatives on the books, we’re creating a more flexible approach so as the market demands, we can expand and contract the number of reps we have at our disposal.”iii 7
  9. 9. ConclusionSales Force Outsourcing has become a more significant part of many companies’ “go-to-market” strategy and istransforming Sales and Marketing organizations. Companies who have embraced Sales Force Outsourcing arebuilding a sustainable competitive advantage.Sales Force Outsourcing can: • Speed the launch of a product or service to market. • Enable a company to cost-effectively expand into new markets. • Reduce sales cycle times. • Accelerate revenue growth. • Capture missed opportunities. • Reduce sales and marketing costs.When selecting a sales force outsourcing firm, look for customized, scalable sales solutions. Select a companythat will be your partner, not just a vendor. And, most importantly, look for a company with a track record of deliveringreal, sustainable and profitable revenue growth. Outsourced Sales Services • Development and implementation of a scalable strategic sales plan • Identification of target markets and accounts along with introductions to senior decision makers 600 Unicorn Park Drive 2nd Floor • Identification and introduction to appropriate partners Woburn, MA 01801 and sales channels • Creation and implementation of lead generation and inside Telephone: (781) 460-2100 sales activities designed to engage prospective customers Fax: (978) 824-2301 and partners and help drive revenue Inquiries: • Planning and execution of corporate events and marketing programs • We help international firms establish a sales presence in the U.S. © Copyright 2010 Mansfield Sales Partners | All rights reserved. We enhance sales productivity tools including: • Elevator pitch and value proposition materials i Maurice F. Greaver II, “Strategic Outsourcing: A Structured Approach to Outsourcing Decisions • PowerPoint presentations and webinars and Initiatives”, AMACOM, 1999 ii , Dr. Atul Parvatiyar, Dr. Naveen Donthu “Value of • Pipeline reports with accompanying methodologies Outsourcing Sales and Marketing”, ASMC Foundation, 2006 • Sales operations plans and reports OutsourcingExecSumFinal.pdf • Channel and partner agreements and contracts iii The Wall Street Journal Health Blog, http://blogs. • CRM systems and management reporting tools reps-merckbrings-in-contract-sales-force/ September 19, 2008 • Marketing collateral and programs 8