The power of relationships and purpose
11th January 2022 | Nick de Cent
Digital is enhancing the way we manage business and sales organisations, but analytics are underpinned by relationships and human behaviours.
The value tied up in customer relationships is vast but hard to measure; purpose is now a profit centre and predictable human behaviours can help us to forecast sales more accurately. These were just three of the key takeaways from Consalia’s highly respected annual forum for innovation, the Global Sales Transformation conference.
Delegates were able to meet in person at the London Stock Exchange for the GST XVI conference on 7 October 2021 after the event took a year out in 2020 due to the pandemic. Focusing on the theme of “relationship capitalisation”, this year’s event offered sales leaders various perspectives on how business relationships can be valued, as well as insights into other key topics such as purpose-driven partnerships and the application of predictive analytics in sales forecasting.
Opening the conference Consalia CEO Dr Phil Squire and Ryan O’Sullivan, Industry Head, Professional Services, Introhive discussed “Key accounts: where value and values intersect”.
“We want to explore some quite innovative thinking about the way we place value on our key accounts as a predictor of future performance,” Dr Squire told delegates.
“Relationship Capitalisation is the process to capitalise the value of client contracts and the network of people and organisations that represent employees, clients, partners and suppliers. It is explained as the value created and maintained by nurturing and managing good relationships. It is therefore a predictor of current and future value of (key) accounts and as such can be measured.”
He discussed why the topic is important:
- There is mis-applied science in how relationships are measured.
- There are instances of deliberate intent to mislead regarding the value of customer relationships.
- The pandemic has introduced the phenomenon of relational constraint, with a potentially reduced relationship quality via virtual interactions versus face-to-face.
O’Sullivan, who was previously at Infosys, presented a Barclays case study illustrating how key accounts can be lost without warning if relationships are not well managed or maintained at the appropriate level. Dr Squire added a second case study that further underlined the importance of relationships, illustrating that even when the right processes are in place and a supplier is adding significant value for its customer, this can be derailed when key individual relationships break down.
Dr Squire proposed two metrics for valuing key accounts: 1) structure, and 2) a metric which explores feelings and values. In the context of relational constraint, he noted the current concept of “The Big Resignation” post-pandemic, asking “Are customers feeling the same right now? Are we losing that emotional attachment with our customers?” He noted the work of Professor Julian Birkinshaw (London Business School) which suggests there are two factors that give companies competitive advantage: 1) adhocracy (agility), and 2) emocracy (emotional attachment to the brand).
Dr Squire set out three components of value: 1) a finance element (current and future), 2) a contract component (current and future), and 3) the relationship capital factor (structure and values)
He noted that sales lags finance and marketing from a systems perspective. However, a methodology is now available to obtain and analyse the data needed to value relationships, via a combination of survey and customer-interaction data and AI-powered analytics. This can sit on top of a CRM system such as Salesforce to power a dashboard indicating the future predictability of your key accounts.
“This is trying to put more science into the way we are looking at relational value,” Dr Squire concluded.
How the finance world values customer relationships
Intangible assets – including the value of customer relationships – are estimated to be worth $75 trillion today, and the vast majority of these go unrecognised on the balance sheet due to current accounting rules, according to Richard Haigh of Brand Finance, who discussed the “Science of Valuing Intangible Assets”.
Prefacing his presentation with a quick tour of the world’s most valuable brands (Apple’s trademark being worth some $260 billion alone), Haigh differentiated between tangible assets (plant, property, cash at bank) and intangibles such as contracts, artistic property, marketing, IT, and customer relationships with a balancing figure called goodwill. Currently, an estimated $13.9 trillion of marketing intangible value remains unaccounted for among quoted companies.
He described Microsoft as the most “intangible” company in the world, with 93% of its assets being intangible, and 91% being so-called “homegrown” intangibles (brands, technology, customer relationships) not on the balance sheet.
This is trying to put more science into the way we are looking at relational value.
Turning to the specifics of valuing customer relationships, Haigh identified three specific areas: customer lists, order or production backlog, and customer contracts and relationships. However, he cautioned against simply adopting a top-line approach to valuing customer relationships noting that you have to adopt a more holistic approach to the process that takes into account associated costs. His favoured approach is the snappily named “multi-period excess earnings method” (MPEEM), which looks at the profit you obtain from a relationship. This includes revenue estimation and expected earnings along with associated contributory asset charges and discount rates.
In conclusion, he showcased a snapshot-in-time valuation of professional services giant Accenture, noting that intangibles made up some 86% of the firm’s $180 billion value, with 43% of the value tied up in customer and contractual relationships – with 38% accounted for by customer relationships.
Purpose as a profit centre
Alf Janssen, Sales Director Strategic Accounts, SAP discussed “Purpose-driven partnerships”. His team focuses on purpose-led engagements with the tech giant’s strategic accounts (the top 4% of all customers), where they seek to find commonalities between the purpose of the client company and then to connect that with SAP’s own purpose, which is “to make the world run better and improve people’s lives”. Based on that, the team develops new relationships and connections, fostering C-level relationships to build strategic partnerships, as they aim to create purpose-driven partnerships and “try to win the hearts of our customers”.
He stresses that purpose is on every CEO’s agenda and at the top of the agenda for SAP customers in the Netherlands such as Unilever, Heineken, Shell and Philips.
He explained how his research into the value of SAP’s purpose statement concluded that “purpose is now the new normal”. Millennials and GenZ require us to lead with purpose. Ethical and sustainability issues cannot be solved by governments and non-profits alone; companies like SAP need to chip in and contribute to solving societal problems.
Janssen quoted British historian Niall Ferguson, who said: “We no longer live in a democracy. We live in an emocracy where emotions rather than majorities rule and feelings matter more than reason.” He added: “That example inspired me to challenge myself.”
He proposed that the future of doing good business belongs to the “conscious capitalist organisation”. Customers, consumers and employees require companies to:
- Operate with a purpose other than profit maximization as their reason for being.
- Seek to create value for all their stakeholders, not just shareholders.
Meanwhile, the role of management is also changing:
- Leaders are motivated by service to the company’s purpose and its people, not by power or personal enrichment.
- Strive to build cultures with trust, openness and caring, instead of fear and stress.
He emphasised that sales leaders need to ensure they are motivated by the higher purpose of the company.
Giving an example of the SAP approach, he described how one consumer packaged goods (CPG) customer was procuring raw materials from certain countries where there is potentially child labour. “As a big CPG company, you don’t want to be associated with those kinds of supplier, but how do you know which supplier is clean and which ones are not?” SAP developed a blockchain-based solution to track which suppliers are accused of child labour so they could be excluded from the procurement process. The CPG company was then able to use this stance towards suppliers in its own marketing and sales materials.
Purpose is now the new normal.
Turning to the concept of purpose as a profit centre, Janssen explained how it builds reputation, drives innovation and engages employees, consumers and customers, which manifests itself by driving top-line growth, brand loyalty; simultaneously talent retention and attraction go up.
How predictable human behaviour facilitates sales projections
Knowing whether your organization will achieve quota and what remedial action to take if not is the “Holy Grail” of sales forecasting. Data science specialist Ofer Zilberman, Senior Director for Business Insights and Productivity, ServiceNow, explored “Predictive analytics in sales forecasting”.
Introducing the concept of “coverage” in the context of quota (basically pipeline divided by quota) and further refining this as “weighted coverage”, he plotted the position of individual salespeople in a company across two dimensions: the x axis showed pipeline over the longer term (four quarters), while the y axis indicated the mature pipeline across the mid-term of two quarters.
Turning this into a typical quadrant box made it easy to see that ideally you would want your reps to be positioned in the top right of this quadrant. If positioned in the top right, the sales leader’s action should be to validate that rep’s position; if positioned bottom right, then the action should be to get reps to mature what they’ve got; those reps positioned top left are good for the first half but not the rest of the year; however, bottom left is often where the majority of reps are and where you also see the biggest attrition rate.
Because the majority of reps are typically positioned in the bottom left, Zilberman additionally highlighted part of this quadrant as a “red zone”. The reps in the red zone achieved 80% of quota versus 188% of quota for those in the top-right quadrant.
Exploring three-year performance of ramped reps linked to coverage, he found that there is a 40% plus difference in performance (average attainment) between those to the left and right of the two times coverage line (at the beginning of the year). However, he noted that this is not just about data; it’s based on salespeople’s behaviour.
He emphasised that being in the red zone is not necessarily bad because there are lots of resources to help; however, remaining in the red is bad. So it is important that reps don’t just stick some more opportunities into the pipeline to compensate for their position because then those extra resources will be focused on those perceived as needing more help.
Zilberman flagged up some important takeaways:
- For demand generation, pipeline is a lagging, not a leading, indicator.
- Have a demand-generation plan for each rep.
- Work towards a mindset of accountability and transparency.
- Have a clear definition of what is pipeline (not the first meeting) and what are sales stages.
- Carve equitable territories aligned to the sales rep’s DNA (eg, hunter versus farmer).
He recommended a pipeline conversation once a month between rep and manager, ignoring forecast and quota but focusing on the longer term. This starts to generate activity, accountability and transparency for the organisation and your sales reps.
Moving to how analytics can be predictive, Zilberman noted that the peak point for quota predictions was always five months prior to quarter close. Why? Because reps were told to clean their pipeline for the previous quarter and simply kicked those opportunities down the road into the next. He then correlated the five-month peak point to the health of the pipeline to create a projection mechanism. This has enabled him to predict quota attainment with a notably high degree of accuracy over an extended period.
As further takeaways, he emphasised that:
- Projection must have current context. “You have to keep looking for evidence; just having that projection doesn’t mean you’re going to hit the numbers.”
- Think pipeline health, not just coverage.