Be careful about hiring “stars”, warns a Harvard senior lecturer in the Entrepreneurial Management Unit at Harvard Business School.
Frank V. Cespedes, who recently developed a book entitled “Aligning Strategy and Sales: The Choices, Systems and Behaviors that Drive Effective Selling,” cautions about hiring ultra-talented individuals. “…you’ll never have enough stars for all sales positions and, in fact, don’t want stars in all jobs. In any organization, some activities exhibit high performance variability but have little strategic impact.” He uses as an example the difference between retail selling at Nordstrom and Costco. He points out “personal service and advice are integral to strategy execution at Nordstrom while at Costco low prices and product availability make selling less complex and variable.
“In activities with low impact or little variability, you don’t need stars and should not overpay, either in money or in time,” according to Cespedes. “In other words, effective hiring and selection in sales is about building the right portfolio of talent.”
The book was introduced in an article in the Aug. 25, 2014 issue of Harvard Busines School’s Working Knowledge. (Working Knowledge is a free periodical available on the Internet.)
Need for Strategy Creates ‘Huge Gap’
The main focus of Cespedes’ book is the “huge gap” between a company’s overall business strategy and the way the salesforce operates. He notes that companies spend more money and hire more people to fulfill their sales function than they do anywhere else in the firm. He points out that at Google and Groupon that more people work in sales than data mining and at Facebook “the salesforce’s ability to translate ‘likes’ into advertisers will make or break that company’s valuation and fortunes going forward.”
Cespedes addresses the cost of hiring and keeping productive salespeople: “Putting the right team on the field is crucial. As the saying goes, ‘You hire your problems,’” he writes. He adds that building productivity in a sales force is constrained by a number of reasons. He points out: “due to the data and analytical tasks facing many sales forces, productivity ramp-up times have increased.”
He adds “each hire then represents a bigger sunk cost for a longer time. As baby boomers retire, they must be replaced. In addition, there were layoffs in sales (and other functions) throughout the recession starting in 2008. As firms seek to grow, putting more “feet on the street” (or in inside sales positions) increases hiring.
Turnover is yet another challenge, Cespedes points out. “For years: involuntary turnover in sales organizations has remained at 13 percent, since peaking at 14.6 percent in 2009, and total turnover (involuntary and voluntary—i.e., retirements, moves, etc.).” he writes. “In in both good and bad times [turnover] runs between 25 and 30 percent. This means that the equivalent of the entire sales force must be replaced at many firms every four years or so. And the time frame shrinks if and when companies increase revenue targets.”
Building Talent Portfolio
In building the firm’s talent portfolio, Cespedes offers the following advice:
“Focus on how the salesperson makes a difference.” He advises organizations to continually ask: ‘Where are we spending too much—and too little—time, money, and talent across our sales tasks?’” He points out that key activities will be affected by changing markets such as subscription-based businesses like software and many consumer web services where, “sales activities with high variance and impact early on are about customer acquisition. But as the market matures, key activities tend to shift toward account management, reducing churn, working with engineering on custom applications, and up-selling or cross-selling additional services.”
“Focus on behaviors in selection.” According to Cespedes: “In many firms, this means upgrading assessment skills. Managers are excessively confident about their ability to evaluate candidates via one or two interviews. But studies across job categories indicate there is only about a 14 percent correlation between interview predictions and job success. This is especially true in sales. A job where individual performance can make a big difference inevitably leads to a cloning bias—many sales managers hire in their own image because how each manager achieved that performance is what got him or her promoted and in a position to hire. But the best results, by far, occur when recruiters can observe the relevant job behaviors.”