Friday, July 22, 2011

No more sales commission?

Comment and let me know what you think of this gentleman's point:

Paying Sales People Commission an Antiquated Concept
June 22, 2011 by colin_patrick_cairns

I’ve been reading and thinking about sales processes, building sales teams, and what makes organizations effective in growing market share and I have come to an interesting conclusion. Everything we know about sales for the last 100 years is wrong. I see a need for a fundamental shift in the way companies build and structure sales organizations, and more importantly, the way they motivate them.

If we look at the history of the sales profession (starting from when the role was stand-alone, not inventor or service provider selling their own products/services or snake oil), we see that every technique that has been identified, generally accepted, taught and ingrained in sales people and the organizations that employ them have later been determined to be detrimental to the sale…that “sales” gets in the way of “buying”. Most people hate to be sold, but most people like buying. New stuff is cool whether it’s a personal iPhone, or a new data center, or marketing campaign for your organization. But no one likes the sales guy, unless it is lunchtime or happy hour and we want a freebie. I contend that the reason is because the system is flawed—we still use antiquated roles and compensation plans.

It wasn’t long ago at all that “closing” was the predominant skill required of the sales staff, and organizations hired individuals that could name the most techniques in the interview (“Ben Franklin”, “1, 2, 3”, “Alternative Close”, “fear of Loss”, etc.). Neil Rackham’s book SPIN Selling came out in 1988 and proved based on (somewhat questionable) qualitative and quantitative research what everyone intuitively already knew–that “closing” has a negative correlation in results, but a perceived personal positive correlation to the sales person implementing the technique, and that the correlation increases in line with the complexity and sophistication of the product/service or purchaser. Simply, the smarter the buyer and the more money they are spending, the more likely they are to see through, and be turned off by a cheezy sales tactic. But, because sales people are trained and paid to use hard closes, they believe that when they do get the sale, it is a direct result of their action. When they do not get the sale, they will see it as unrelated to their action, or related to not enough action.

Though many organizations and individual still employ and teach these closing techniques, much of the world has finally moved on. The next big jumps in selling have been Value Selling, Solutions Selling, Question Based Selling, Relationship Sales, etc. Most of these ideas are built on the simple concept that large deals with any degree of complexity are typically completed based on trust and mutual understanding of business value in win-win relationships for the provider and the client. The deals are not off-the-shelf, require custom relationships and the ability of the sales team and selling organization to make changes to offerings to provide a REAL solution for their customer.

Great! This is a huge step forward in building a sustainable ethical business community that people can support and get behind; something that provides people with purpose and satisfaction in their jobs. It is a recognition that a company’s goal (and the sales organization’s goal) is not only to produce profit, but also recreate a scenario in which they can make profit in the future. But the question remains, how many sales guys/gals do you trust? I would guess not very many. Let’s face it, sales teams are all still focused on their commission. Of course they are—at least %50 of their compensation packages built on assumed commission.

So how do you build a sales team that is motivated to grow marketshare, close business, build new relationships with new clients and extend relationships with existing clients if you don’t have a carrot? The answer is really interesting. There is a great video by RSA Animate, “Drive: The surprising truth about what motivates us” that is not only some of the coolest whiteboard animation I’ve see, but is also a great look into the question of motivation. It documents a study done by four economic professors from MIT, Carnegie Mellon and the University of Chicago that suggests that a sliding scale, monetary reward works really well for simple, linear tasks. But, once the task required even rudimentary cognitive ability, higher rewards led to poorer performance. The more cognitive ability required, the more financial motivators had a negative correlation to performance…carrots did not work to achieve better results for complex work.

The concept is intuitive when you think about it, in the same way that hard closing techniques backfire on a sophisticated sale. The more intelligent, talented, educated, sophisticated the individual, the less likely it is that they want to be treated like a horse.

The business world is starting to recognize this, and capitalize it on a real way. The video also talks about another great example. If someone told me 20 years that they were going to get a bunch of really intelligent, skilled experts from around the world to do highly complex work free. These are people that are the top of their field, have high paying jobs, and they’re going to volunteer their time, sometimes 30 hours a week. Then, we’re going to take what they produce, and we’ll give it away. And we’ll make millions of dollars…it would have sounded ludicrous, but we have 1 out of 4 corporate servers in fortune 500 companies power by linux—Apache, Wikipedia, etc…

So what is the motivation? According to Dan Pink in the video, the answer is three things: Purpose, Autonomy, and Mastery. Great, how do we institutionalize these concepts into defined processes, roles, compensations packages, etc. to get repeatable results from a sales organization of a major company?

The first step is to attract the talent—candidates with the brainpower and personal motivation to do the job. A company has to create a place where this fundamental shift in the way business is done can happen. For some organizations this will require a fundamental shift in the way they do business, away from solely profit motive driven to encompassing some real transcendent purpose motive. This can happen through sophistication of products, missions, etc.

Where do we draw the line in complexity/scope for products and markets that can work with old-school sales techniques, and organizations that need to build commissionless sales teams? I would say that it has to do with the degree to which an organization needs to, or is willing to make these shifts. If the company has a real and defined purpose motive, chances are it needs to stop paying sales people commission.

The second step is to pay them enough that money is not an issue. This is a fairly simple point, but really the root behind why this method works, and why you see the converse effects on performance of bonuses for highly skilled requirements. Maslow’s hierarchy of needs articulates that only after the basics of life are fully covered, can the real problem solving and contribution begin AND that after those needs are met, it is a necessary progression. This is also why lower salaried, higher commission sales people are more likely to focus on short-term profit and hard closing techniques that backfire.

The third step is get out of their way and wait. Provide resources, education, co-define and document goals, measure progress, etc., but let them have the autonomy to create and implement strategies individually and as teams. Find and define more and more complex engagements and goals. Acknowledge and reward mastery.

That’s it.

I know large organizations are complex, that making changes are not that simple, that things have been working this way for a hundred years. But I also know that when organizations start to make these changes in their sales teams, we will see tremendous results, real and profitable collaborations, and measurable growth.

Ten years ago, before I’ve seen this scientific research on motivation, before I have looked back on my personal career, and organizations I’ve worked for or engaged with, I would have made the exact opposite argument. I thought that every member of staff should have financial rewards for performance to tie the goals of management and labor together. I now understand that the profit motive will not accomplish this tie in a real way. Only through aligning on Purpose, allowing for Autonomy, and being a place where Mastery can happen will the talents of people unite with the goals of an organization.