Is Money the Right Problem?

for the Financial Times, October 2001

In challenging times, we repeatedly build business plans based on the benefit of saving money for our customers. When you look at the benefits section of most business to business proposals, you find reducing cost high on the list. Frequently marketing or sales teams emphasize cost savings as the reason to buy. But where do the savings come from? The operating assumption is that saving money is the highest priority for your customer. If the product will reduce your costs, they’ll buy it; any rational person would. All too often though, the money that your customer saves comes from your coffers - as discounts. Saving money is an easy pitch for sales, marketing, and products, but a recent survey shows that there are better approaches.

The presence and level of profits are certainly yardsticks for overall success. However, other problems rank even higher. What makes cost controls easy is that most companies will have it on the list of problems. The question is not whether it is on the list, but how high. But if you want to increase sales in difficult times, you want problems that feel more critical to your customers. These are harder to find.

If you are going to look for problems business executives feel that they need to solve, you might do best simply to ask your prospective customers. So we did. This spring our consulting firm conducted a wide-ranging survey of business-to-business companies. We wanted to find out where cost control ranks in the list of problems to manage.

This was a unique time, a period of unsettled economic news. The United States was dancing close to recession. Instead of growing, many companies became seriously overextended. Dot-com and technology stock valuations were crashing, and many high-flying companies were discovering unprofitable quarters for the first time. In Silicon Valley layoffs were starting in businesses that had never laid off an employee. It has been traumatic to many managers and executives. The President of Cisco Systems, John Chambers, waived his annual salary so that three anonymous employees could avoid a layoff. Given all that, you might expect cost control to be high on the list of immediate problems that need to solve. The survey gave us the unexpected. Only 1 percent of the respondents identified cost control as one of the top two concerns.

The survey covered four hundred managers, Directors, Vice Presidents, and Chief Executive Officers in the US. We asked each to tell us the top two operational problems on their desk that specific day. Of the managers who answered, more than two-thirds of the respondents were at the Vice President level or above, with almost half being CEO or the equivalent. What is at the top of their hit parade?

The most common issues (given top billing by just under a third of the respondents) were day-to-day functional problems, focused internally to the business. A Vice President with an international telecom company noted “Management of real-time business information (concerning) sales, customers, and business metrics.” For him, the issue was not information technology, the issue was the information itself. Processes appear in this list often. A Sales Vice President at a software company said simply “process improvement . . . . Are we making it easy to do business with” the company? Infrastructure problems were also common. Several executives noted how much difficulty they have getting basic services, and they seem frustrated. Making tools work and be useful garnered the largest number of exclamation points among all the answers. We are not just talking about computers, it includes E-mail, phones, lights, offices, and buildings.

This grouping was followed closely (about a quarter of the executives) by revenue and market positioning issues. This problem focuses on the external view, problems that deal with making deals happen, marketing to groups of customers, and ensuring that the committed revenue actually arrives. The challenges listed by one CEO include “balancing a transition from old to new without disturbing/impacting revenue.” The CEO of a software services company highlighted “forging our value proposition into our client communications and marketing message.” The CEO of a network products company was concerned with “expanding the product portfolio to cover additional markets.”

Communications and people issues came next (17% and 16%), followed distantly by Information Technology and Partnerships (6% and 3%). Cost control, so dominant in marketing pitches, came up only 1% of the time when we asked the people to whom you may be pitching.

The message is clear. If you wish to deal with the most important problems facing this audience of executives, look closely at the functional and revenue issues. You will not want to focus on saving money. Compared with day-to-day operational issues and revenue issues, cost control pales.

Perhaps most important, saving money solves almost none of the problems. If your business plan focuses on cost savings, you are missing the target and making it harder to grow out of a down economy. If you focus your plan on increasing revenue, you have a much better chance of success.

More Lessons From the Operational Issues Survey

To understand the lessons of the survey, it helps to know who responded and what functional and revenue issues they detailed. These two pages detail that for you. Over all, more than three fourths of the respondents were executives. Forty percent of the respondents hold the title(s) of Chief Executive Officer (CEO), President, Chairperson, General Manager, Principal, or Chief Operating Officer. Twenty-nine percent have the title of Vice President, including Senior VPs, Group VPs, Vice Presidents of Operations, Engineering, Manufacturing, Sales, Marketing, Technical Services, Human Resources, and two Chief Technology Officers (CTOs) who have staff. Nine percent were Directors, an executive title in most companies.

The companies include research institutions, services firms, financial services firms, software companies, manufacturing companies, telecommunications companies, consulting firms, computer companies, and health care.

Day-to-Day Functional Issues

Almost a third of the answers related to the day-to-day running of the department or function and were focused internally to the business. A manager of business development for a software services company listed, “Understanding the state of various projects which need immediate communication and nurturing. Prioritizing these correctly for short-term and long-term business development.” The Director of Operations for an international consulting firm identified “Monitoring for compliance with the operating policies and procedures of the company.”

Processes appear in this list often. As noted, a Sales Vice President at a software company said simply “process improvement. . . . Are we making it easy to do business with” the company? The General Manager of a financial services business worried about “Identifying and defining complete implementation procedures . . . to reduce client impact during new product introduction.”

Infrastructure problems were common. However although information was an issue, Information Technology did not get to the top of the list. The top of the list for a Vice President with an international telecommunications company included “Management of real-time business information (concerning) sales, customers, and business metrics.” For him, the issue was not information technology, the issue was the information itself. The Managing Director of a venture capital company said “Taking new, relatively complex processes and developing systems (both IT and non-IT) so that personnel farther down on the chain of command can manage them effectively.”

Sales, Marketing, and Revenue Issues

Almost a quarter of the survey responses focus on the external view, problems that deal with making deals happen, marketing to groups of customers, and ensuring that the committed revenue streams actually arrive. The survey results show that title and position do not determine answers.

As you might expect, new markets ranked high. The CEO of a hot network products company worried about “growing the company’s ability to compete in markets beyond the obvious extensions of the (original) market.” The CEO of a European software firm’s American division focused on “identifying new market niches to exploit.” The Vice President of Sales for an international telecommunications firm simply answered, “Development of new markets.”

One software CEO said that his company “is currently re-branding, repositioning itself.” The challenges include “balancing a transition from old to new without disturbing/impacting revenue.” The CEO of a software services company highlighted “forging our value proposition into our client communications and marketing message.” The head of a consulting firm was struggling with “how to overcome the clients’ resistance created by the ‘newness’ of the service.”

Instead of a focus on how to manage individual products or services, product management reflects in the answers as a broader strategy issue. The CTO from an international software company wanted to “formulate the mid-term product roadmap.” The CEO of a network products company was concerned with “expanding the product portfolio to cover additional markets.”

Conclusion

None of these problems are solved by saving money. Many can be overcome with growth, and growth may be a logical place to focus your customer, and internal, proposals. If you focus on cost savings, you may be able to do better.

Copr. 2001 by the Meyer Group, all rights reserved.