The IT Sales Model is Broken
We are in the midst of a genuine revolution in the way I.T. sales are made. At the heart of this revolution is the issue of competing on value. In many cases, the differences between traditional sales approaches and value-based selling appear to be subtle, but in fact, they are profound, requiring changes in strategy, corporate culture and selling skills.
Selling As A Value Exchange Process
Today’s markets are characterized by rapid commoditization, and it is seldom possible to compete on the basis of product features and benefits for any length of time, if margins are to be maintained or improved. Increasingly, the question being posed to suppliers, by their most important customers is – “How much better off will my company be if I buy your product/service or business solution?” If suppliers cannot answer this question in precise terms, (and they almost invariably can’t) price becomes the primary determinant of which buying decision is made.
However, this is but one side of the equation. It is all very well delivering demonstrable value to the customer. But, for obvious reasons, it is also vital that the supplier earns an equitable return on the value delivered. In far too many cases, suppliers struggle mightily to enhance the value they provide through a range of so-called value-added services, only to receive “commodity” prices for their products. This leads to the disastrous situation where margins erode and costs increase.
The Incentive To Purchase
Value – Price = Incentive To Purchase
In virtually all sales interactions, price is crystal clear. However value is usually extremely unclear. In fact, in most cases, neither supplier nor customer has the faintest idea whether any value was delivered or, if it was delivered, how much or when! If sales organisations are to professionalize, then the capacity to identify, quantify, deliver and track the monetary value provided by their offerings will become a core competency required for success and survival. This is no trivial task and in hundreds of discussions with senior executives in IT, chemical specialties, banking, telecoms, financial services, software, outsourcing and manufacturing, we have yet to find an organisation that has dealt with the issue convincingly.
Increasingly, customers are demanding proof – hard evidence – that I.T. offerings are delivering added value in excess of price. However, for IT sales professionals the challenge is even greater when client executives are asking:
1. Is there an ROI and, if yes, how much?
2. How do I convince the board to vote the budget?
3. How do I prove to the board that the return has actually been delivered and when?
The IT industry’s inability to respond creates a major communication problem that results in slower decision making, protracted selling cycles and staggeringly high selling costs.
A More Helpful Approach – Value-Based Selling & Delivery (VBSD)
To date, I.T. industry responses to these challenges have centred around TCO (total cost of ownership), which has nothing to do with the delivery of value, and traditional spreadsheet-based ROI calculations, which are typically complex, cumbersome and simply not believed by the client or the supplier. Neither approach has proved terribly useful from the customer’s perspective. Furthermore there is no mechanism for tracking the actual value delivered.
A more helpful approach is Value-Based Selling and Delivery which assists suppliers to:
• Build a financial model for an IT offering (e.g. call centre, ERP, CRM etc.)
• Isolate the value drivers impacted by the offering. (These are not always obvious).
• Assign measures and monetary benefit to them
• Populate the model with these numbers
• Make them accessible, obvious and easy to understand (no 200 page reports)
• Encourage the client to challenge, change and verify the numbers
• Show how the value will actually be delivered
• Reach consensus based upon the agreed facts.
• Do it all fast! (In days or weeks rather than months)
A Radically New Way Of Selling
I.T. delivers little business value of itself. Actual business value depends on how well I.T. investments are targeted and how well they positively impact the identified value drivers and unlock the value that exists. In the new world of IT selling, sales teams will develop the skills to build financial models for their offerings, run preliminary numbers through the model and then engage senior client executives (typically CEO or CFO) in a process of debating and verifying the predicted value. This positions the salesperson as a business consultant, achieves buy-in and support from the highest levels of management in the client organisation and dramatically shortens the sales cycle.
A further element of value-based selling and delivery is the ability to gain closure on the predicted value by developing a robust work program linked directly to predicted value and combined with a tracking process that provides a clear view of what value is or isn’t delivered. Deviations are highlighted, their financial impact highlighted, and executive attention focused on what action needs to be taken. This approach is dramatically different from the traditional approaches still employed by IT companies we have encountered.
IT sales professionals need to have a new focus. The primary role of the salesperson has changed:
• From day-to-day transaction management, specialized technical support and customer service
• To customer business consultant
As “consultants” salespeople much first understand their customer’s business (perhaps better than they do), elevate their points of contact beyond the customer’s purchasing, IT or administrative personnel (CEO, CFO, CIO), and then add measurable value (beyond delivery of the billed product/service) to the customer’s business results.
In our experience based on work with many of the major IT players worldwide, IT salespeople do not make the transition to value-based solution selling easily – even when armed with the tools and methods of value-based selling and delivery. In many cases, the best approach is to create a small specialist or pathfinder group, staffed by innovative salespeople and given the necessary coaching and guidance. Successes with a few carefully targeted deals then reinforces the “buy-in” and commitment and releases funds for further transformation of the salesforce. In many industries the best way and, in some industries the only way, to enhance salesforce effectiveness, is a new focus on delivering and receiving value