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Theory Of Constraints For Sales Management 

 November 15, 2010

By  Gavriel Shaw

Notes from the book The Cash Machine by Klapholz and Klarman

The market for our products is expanding… but we simply are not there to take advantage of that fact.

We have a healthy growing market. We have assembled the best possible people. The management team is improvement-driven and, relatively speaking, non-political… still are sales are going down and we’re losing market share.

All the standard solutions come to mind: replace all the sales guys, invest heavily in marketing promotions, train our sales guys better, increase our sales support staff, focus our sales guys on a smaller amount of products and solutions, have our service guys sell products too. This is not systematic at all…

TOC claims that the performance of the entire system is governed by rather a very small set of constraints. … Knowing the identity of the constraints enables one to assess the potential of an entire system without going into too many details.

…I prefer to ask a few questions first in order to put the concepts in practice immediately. I believe that we can achieve a lot in our first meeting.

10 Steps of Sale

  1. Selection – target audience based on well-defined criteria set by Marketing.
  2. Qualification – Basic general questions to define if they really are in need of our product.
  3. Needs Assessment – Specific questions, often on-site.
  4. Letter of Understanding –
  5. Presentation Demo –
  6. Solution Proposal and Technical Check – detailed proposal
  7. Production Demo – Benchmark specific customer jobs.
  8. Quotation submission – Price quotation with complete solution description.
  9. Negotiation
  10. Closing – PO received.

Sales Funnel

  • Input to the funnel is qualified prospects
  • Key parameters input to output: Ration and Time
  • Output – Closed orders

Average close ratio and average sales cycle.

Identify the five most common complaints or concerns of the sales guys: Product availability, difficult to book demo time, competitive products, price complaints…

Are there any steps of sale that are sometimes bypassed? … depending on it being a new customer sale, repeat sale, cross sale… There is sometimes uncertainty in the process.

TOC deals exactly with those type of problems.

TOC gives five steps for continuous improvement

1. Identify the constraint
2. Exploit the constraint
3. Subordinate all other processes to the constraint
4. Elevate the constraint
5. Start all over again from step one.

In many cases, people jump to step four: elevate the limitations created by the existence of the constraint… but this is often a wrong start, and usually a costly one too.

… If you keep adding prospects into the process you lose visibility of truly important prospects – those that have passed through the bottleneck. You lose focus on the critical steps eight to ten. You should add more prospects into the cycle only at the rate of your bottleneck.

Input to the process needs to be linked to the pace of the bottleneck.

There are no two bottlenecks in the same production line, there is only one. We need to solve one at a time and then look at the new interdependencies that are created.

The marketing function is also responsible to identify where the problem is: Awareness? Interest? KNowledge? Once they know, they are able to foes their marketing campaign accordingly.

From the district sales management level and below, it remains traditional selling: steps-of-sale; relationship management; negotiations; decision-making units; product argumentation and solutions proposal. At top level down to the regional sales manager level it is all that plus a more operational look at sales.

By having an operational view on sales, we could start to apply TOC methodologies.

Pierce had been managing Sales by being the best sales person in the term and even more – the best closer. I am not focusing on that at all.

From my position, I have been able to orchestrate everything around throughput management and bring in more orders more efficiently.

Exploit and elevate constraints.

When an operation is not run, or timed, by a bottleneck, the bottleneck is often not visible.

Once we have become a market leader… repeat business becomes the main business.

Any project is a series of dependable events. Uncertainty should not be ignored. It needs to be managed.

  • The student syndrome – Don’t begin preparing for exams until the last minute.
  • Engineer syndrome – There’s always a way to make it better; more elegant; more efficient

Remove all safety from the distinct steps. Put all the safety times as an aggregated buffer at the end of the whole project. Put some buffer time in front of processes or steps that use scarce resources.

…No punishment for being late, as we all know that you left them no safety.

No more perfectionism as we saw with the software engineer syndrome, and no more delaying starts like in the student syndrome.

When you identify the constraint of a process, and when you subordinate all other processes to that constraint, you basically do exactly that – manage uncertainties.

Focus on the customer acceptance process, and not on order taking or on revenues.

When there are no foundations, growth does not create value, it creates a bubble. And bubbles, we already know, tend to burst.

For too many executives in our industry, growth has become a religion. This religion has often driven unworthy acquisitions and business malpractice.

I am solely driven by a desire to improve – fixing whatever needs to be fixed. I expect honest answers.

Bad multi-tasking issue

Three projects, done piecemeal…

ABCABCABCABC > time goes on…

A.B.B.

Just do one thing – don’t work on additional projects… find a ‘reasonable’ number of projects to do at the same time. Not ten and not one, but perhaps two or three.

Responsiveness and on-time completion or projects are as important as the quality or the content of the projects themselves.

…way to deal with complex issues. Bring together a group of people who have had experience dealing with the problem. We first need to be able to verbalise the problem in more detail. Then we need to find its root cause, or causes. Only then, when we agree on the source of our problems, can we develop a possible solution.

End of Quarter Syndrome

Traditionally, incentive plans are quarterly based. However, it isn’t one of the TEn Commandments, and I think the time has come to challenge it.

We want you to do your absolute best to complete the task on time, and we will monitor the produces, but if you don’t, it’s okay too. After all, fifty percent probability o completion on time is also fifty percent probability of not-on-time completion.

The change of mindset from an environment in which we literally punished the ones who did not meet deadlines, to an environment of understanding that phenomenon.

do you mean that you are confirming that our quarterly measurement, and the incentive scheme of our own sales people is indeed the core of the problem?

ABP times – Aggressive, But Possible.

We got rid of the student syndrome, which caused them to delay the start of an activity, and of the unnecessary perfectionism and creativity which cause them to consumer the existing safety buffers.

With a large, to some even an unrealistic target, one has to run, run, and run.

BBS Table (backlog, bookings, shipments)

(shipments may be synonymous with revenues)

When you know that you don’t have enough time, you will start early and you will work hard from the very beginning.

Incentives/bonuses are earned on cash received, not orders taken.

Screen shot 2009-10-30 at 21.06.21

The first step is never to build something into an IT system. The first step is to turn such a concept into an integral part of the company processes.

I see the bookings per person, per district and per region, on a monthly basis.

Also, I have view of all the buffers in a similar way.

Sales Tracking Reports

  • [widget id=”ad-continue-marketing”]ad-continue-marketing[/widget]Funnel Report: All the ongoing opportunities. Provides an indication of actual status per stage versus theoretical capacity.. indication for the identification of a constraint.
  • Constraints Report: How long does each and every sales stage take.

Sales person | Opportunity | Deal value | Moves to sales stage 1 on: | Move to sales stage 2 on: | Deal won on:

Gavriel Shaw


Gavriel has product and marketing expertise from a variety of roles, including CMO, Head of Growth, Head of Marketing, eCommerce Director, Web Marketing Director, Product Marketing Manager, and Senior Copywriter in various sectors, both B2C and B2B.

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