Special guest by Randall Yim, Executive Conversation Consulting Executive

With public entities increasingly using contingency “Triggers” to balance budgets, now is the time to critically analyze government budget plans for FY12 to identify where your solutions can help.

Federal, state and local entities will be employing a variety of budget assumptions and accounting “tricks” to prepare balanced budgets for the upcoming fiscal year.  It is very likely that automated “triggers” will be employed to get political consensus on the balance between tax increases and spending cuts.  For example, the State of California’s Legislature on July 29^th is sending to the Governor a balanced budget that includes assumptions about the growth in tax revenues, but “failsafes” so that if revenue is below projections, a series of pre-approved program cuts will occur. 

In a “Flat World”, Triggers have Global Ramifications
In Europe, similar triggers form explicit pre-requisites for countries facing economic crises, such as Greece before European Union assistance is provided. At the federal level in the United States, a situation closely watched worldwide due to its global ramifications, the debt limit ceiling may be raised if agreement can be reached on spending and revenue issues, but “triggers” may also be agreed upon as a stopgap for the failure to reach complete agreement between Democrats and the GOP.  These “triggers” are likely to be incorporated into the FY12 Budget in addition to any debt ceiling agreements.

Sales Teams Can Exploit Conditional Budgets by Augmenting the Trigger Conditions
Very few sales teams go beyond identifying “how much is allocated for my projects” when reviewing public agency budgets.  More sophisticated sales teams will look at both the: 

1. Assumptions underlying the revenue and cost savings projections
2. Conditions under which “triggers” are enabled, and the ways in which particular entities – like school systems – suffer should this occur. 

They then align their solution sets to help meet the budget assumptions, or prepare plans for the affected agencies should they be subject to budget reductions if a trigger point is reached. 

Example
If revenue projections are premised upon a 5% reduction in fraudulent claim payments, you may have solutions to make this a reality. 
Conversely, you may have contingency plan solutions to assist an agency deal with a temporary layoff, or reduction in other resources necessary to provide essential services.

Timing is Everything –What You Can Do
Peter Orzag, former head of the Office of Management and Budget in the Obama Administration, notes that increasing deficits will necessitate both spending cuts and revenue enhancements, but that timing is critical. For example, premature spending cuts may jeopardize economic recovery and job creation.

Recognize that triggers are important timing components. Go beyond looking whether the agency has money to buy from you, and become a strategic asset by critically analyzing how you can make the agency budget plans a reality.

But act early – before it is too late for you to affect outcomes.

Please join us Thursday, July 14, 2011 at 11:30 AM EDT | 8:30 AM PDT | 16:30 PM BST | 17:30 CET for the next complimentary webinar in our Buyer’s Perspective Webinar series.  Register Today!

Few sales professionals consistently manage this situation in their favor. Fewer still appreciate the full, hidden costs of extending discounts.

With all the pricing information available to buyers, sales strategies should seek to preempt the ‘discount’ question. Focusing the conversation on business outcomes – throughout the sales cycle – positions you to compete on value.

When customers don’t see value, the consequences extend from your commission all the way to your firm’s market value.

Delivered by Executive Conversation Chairman, James Melillo, this executive-led session will address:

• Recognizing the full impact of even modest discounting
• Helping customers economically value your solutions
• Ideas for quantifying business outcomes
• Using right conversation, right person strategies

Register Today!

Mr. Galanti joined Kirkland, WA-based Costco Wholesale Corporation shortly after its founding in March 1984 as Vice President of Finance and later became Executive Vice President and Chief Financial Officer. Executive Conversation spoke with him about retail investment trends and the factors that influence capital investment decisions at Costco.

Q: With all of the vendors who are looking to meet with you and sell to Costco, what criteria do you use for granting appointments?

RG: I try to direct vendors to the right decision makers in my organization. Sometimes they’ll have already talked to the appropriate contact in our office and either their solution doesn’t address something we’re trying to change or we have competing offers. However, they often still want to talk to the CFO because they assume that’s where the decisions are made. I try to assure them that while I may give the final "yes" or "no," I rely on my organization and the fact that we have very good people managing these functions.

Q: What are some of the best ways for a vendor or service provider to get on your calendar?

RG: Call me old-fashioned, but a short email or letter explaining what service you offer and a request for a call might work best with me. I do try to at least read enough to forward it to the right people in my organization.
The other way to reach me is to base your offer on what’s of interest to me at the moment. A few years ago, for example, when Sarbanes-Oxley raised its ugly head, numerous software vendors approached us with solutions for managing the SOX process. Before that, Y2K concerns for large companies like ours around payroll, healthcare, etc., led me to spend more time meeting with IT providers and reading about solutions for those issues.

Q: Any other general tips you’d like to offer?

RG: Keep it simple. None of us has time to read through all the stuff we receive each week. It’s that 15 seconds to two minutes’ worth of information that comes through the door that has to set you apart. Sometimes I’ll receive a lengthy e-mail or large packet of materials, which seems to imply I’ll read through them myself and make an investment decision based on the sales collateral. That won’t happen. The trick is to successfully convey your message in 15 seconds, which hopefully leads to 15 minutes, which in turn hopefully leads to two hours.

Q: When a sales proposal interests you, but there’s work to be done to see if it clears a hurdle or hits a payback target, how would the sales professional best get your sponsorship to move the deal forward?

RG: Ultimately there are certain people in my department who I have a lot of interaction with and faith in and they may say we already do something similar or that while our technology is a year older it’s sufficient for the next couple of years without reinventing the wheel. It’s up to me to understand what the need is and what the costs associated are, but it’s up to the people I rely on to recommend whether or not we should implement a particular proposal or whether we should be looking at something else. Sometimes, even though the payback is pretty persuasive, a project simply isn’t a priority.

Q: As a former investment banker and now CFO of the largest warehouse club in the country, what metrics do you consider when you’re evaluating capital investments?

RG: At Costco, we’ve set a minimum 15% cash-on-cash return. In terms of evaluating IT projects, we base decisions on the type of payback we expect over two to three years. For example, a project like rewriting the membership system might take more than two years and 10,000 hours of IT programming, plus time in training the cashiers, etc. We also recognize we’re making the investment for a number of business reasons, like customer service and other things that aren’t as tangible as a true ROI.

Q: What types of IT solutions spark your interest?

RG: We see new technology as not only a money-saving issue, but also a customer service issue. For example, If we can help the customer checkout faster and more inexpensively, Costco is happy and the customer is happy. And the customer driving into the parking lot is happy because parking spaces are clearing faster.
Another technology issues on our radar is better leveraging member data. Our goal is to increase shopping frequency. For example, communicating to customers that last spring they purchased X number of dollars of lawn and garden items and notifying them that tulip bulbs are coming in. realizing, of course, that while they’re buying tulip bulbs they may very well pick up a rotisserie chicken and a couple sweaters.

Q: Where could technology lead Costco in the future?

RG: While it’s still a few years away, RFID [radio frequency identification] is talked about regularly. Imagine a customer exiting the warehouse through an archway where a scanner reads the items in their cart, calculates the balance due and perhaps checks it against the expected weight of those items. Without anyone having to take anything out of their cart, they’ve got a receipt and are on their way.

Q: What are some of the larger factors outside Costco’s control that you see impacting your industry today?

RG: Regulatory compliance. Over the last few years there’s been a tremendous increase in the amount of corporate governance and regulatory oversight issues. There is a new level of formality in reporting and increased costs associated with it.

Q: Are there other factors that come to mind from a macro-economic or multinational perspective?

RG: From a worldwide standpoint, certainly energy costs are a big issue. Trade-tariff issues are another, and we’re concerned about the trade deficit with China since, like any major company in America that sells goods, much of our inventory is produced overseas. Our ability to anticipate these issues and respond in a fiscally sound yet culturally sensitive way has been a huge part of our success and will continue to guide us in the future.

Presenting ROI to executives and business decision-makers can challenge sales professionals as much as any part of the job.

Why?

Common reasons we see are sellers:

• Mistakenly presenting Total Cost of Ownership (TCO) numbers – which don’t recognize the required investment; only cost reduction.
• Neglecting to take the customer‘s hurdle rate into consideration.
• Relying on an ROI tool, which, for most executives, offers little value.
• Struggling to use numbers when the projected ROI is too good to be true

Two required ingredients for ROI

Effectively quantifying value with business decision-makers requires you explain both the:

1. Investment (what the customer is buying)
2. Returns (revenue gains, cost reduction, increased margin, etc.).

Sounds simple enough, however ROI discussions often arise early in the sales cycle – when your analysis may lack sufficient depth to be convincing, or plug into your ROI tool. This is when assumptions and estimates come into play.

Steps for incorporating ROI into your sales process

Let’s use an example of a company that has expanded through acquisition, and is now operating with 8 data centers. You want to sell a consolidation solution.

1. Define scope.
   Your objective is to clearly convey the business change your solution enables. In other words, the specific ‘before and after’ investment difference you’re looking to quantify.

     
   Example:

   • Today, the customer operates with 8 disparate data centers, each running various hardware/software configurations requiring dedicated admin staff.
   • After investing, your solution consolidates the 8 data centers down to 3, all running on a common platform.
          
2. Specify investment.
   Include everything that requires your customer to spend money: your costs, other vendor/supplier costs, and the customer’s internal costs. 
       

   Can you really do this?

   Of course. You’re the one proposing the solution, you’re who defined the project scope, and you can determine the hardware/software/service requirements.

   Leverage your and your company’s prior experience in this step:

   Example 1:
   Customer: “How much of your consulting time is in the investment?”
   You: “On projects of similar size and scope, our experience has been it
   takes about 2-3 months of professional services to implement
   the solution.”

   Why does this work?
   Because the customer can easily contact your references to validate the estimate. Even better, it doesn’t rely on any consulting study or white paper which may not be believed anyway.

   Example 2:
   Customer: “What about my people’s time?”

   You: “We’ve found roughly a 1:1 ratio of your people’s time to our
   time. Our estimate was computed using an industry average
   fully burdened cost of $150k per person, per year.”
   Does this work?

   Again, yes. Early in the sales cycle, when you don’t yet have actual cost data, you can use assumptions such as average industry costs. The account may respond that they pay a higher or lower rate; however, you’re now engaged.

   The key when using assumptions are to ensure they’re reasonable, logical, defensible and reference-able. The customer may not agree with them, but they can follow how you got there.

3. Identify cost savings.
   Contrary to popular belief, it’s not the customer’s job to determine cost savings; it’s yours.
     
   

   How so?

   Think about it. Using approximations, based on a typical data center, could you estimate how much the customer currently spends on power, floor space, maintenance and people? Yes.

   Searching the Internet, could you identify the cost per square foot of space in the locations your customer’s data centers reside? Yes.

   Would you be exactly right? No. However, you can establish an order of magnitude for the customer’s current cost structure.

   Developing this ballpark figure creates a starting point for engagement. The customer may not agree with your numbers; however, it may result in their disclosing information that improves your estimate’s accuracy.

   This is why you disclose your assumptions and ensure they are reasonable, logical, defensible and reference-able. Enlist relationships within the account to validate or provide data, if possible.

Finally, since you are the one proposing the new data centers, surely you can project what it will cost to run them. You can then quantify the cost reduction from implementing your solution, which requires less people, space, utilities and maintenance.

Through developing this cost structure differential by using assumptions and estimates, you can quantify the “R” in the ROI.

Using assumptions and estimates to develop ROI is not a crime. Executives use them, and the biggest M&A deals are based on them.

Bottom line: It’s OK to use assumptions, estimates and prior experiences so long as they are reasonable, logical, defensible and reference-able.

Agreed?

Please join us Tuesday, May 17, 2011, at 11:30 AM EDT | 8:30 AM PDT | 3:30 PM GMT for the next complimentary webinar in our Buyer’s Perspective Webinar series.  Register Today!

We welcome special guest Randall Yim , previous Deputy Undersecretary of Defense for US military installations where he managed a $30 billion annual capital budget. Mr. Yim will share an inside view on how buying decisions are made within public sector accounts, and reveal actionable strategies for aligning with decision drivers, risk considerations and approval processes.

Winning business with public sector decision-makers – elected/appointed officials, agency heads, school administrators – is anything but intuitive.  Competition emerges from surprise sources. Common financial metrics lose meaning. Traditional sales strategies can lead nowhere.

Learning to play by different rules

This webinar will focus on ways to capitalize on the shifting circumstances within public sector accounts. You’ll learn how to shape investment priorities and requirements to competitive advantage by:

• Recognizing the trade-offs inherent in public sector decision making
• Working with accounts to internally prioritize, justify and sell decisions
• Understanding how risk disproportionally impacts resource allocation
• Identifying appropriate account and decision-maker metrics
• Knowing what to look for in budgets to spot opportunities – and obstacles

Leading. Scalable. Unique. Streamlined. And of course, optimized. Ever use these terms to a) sound businesslike, b) impress customers or, c) explain your solution?

If so, the good news is you are not alone. Of course, the bad news is also that you’re not alone.

Business decision-makers hear this messaging too often. It’s ineffective. It won’t advance your sales campaign. Here’s a challenge, and a few approaches, to start transitioning from using the typical sales professional’s useless jargon to more compelling executive conversation.

The Routine

Consider what routinely happens:

Sales professional starts: “Our XYZ product can help drive revenue”.

This statement lacks impact and worse, any recent college graduate without business experience can say it. Again and again, terms like “reduce costs” or “grow revenue” are thrown out as if that’s enough to convince.

When asked how so, sales professionals employ weapons of mass distraction like visibility, virtualize, streamline and optimize. These terms are not only overused, they’re meaningless.

Painting a Clearer Picture

To make the leap to clarity, first paint the picture of the customer’s current situation. In other words, how are they operating today? Do so as specifically as you can.

Most sales professionals cannot adequately, accurately or affirmatively describe what is happening within their account’s business. If you don’t know what the current situation looks like, you lack credibility when saying “we can improve it”.

Describe in simple, non-biased terms exactly how the current process works. Don’t purport to claim whether it’s good or bad; just state the facts and the decision-maker will reach their own conclusion. If you say it is poor, deficient, or ineffective, you may not be believed and you may even offend. Describe it so they can visualize it, and then believe it.

Next, paint the picture of how the customer will operate after your solution is in place. It doesn’t matter what your solution is, customers care about results. Because you earned credibility by demonstrating an understanding of their current situation, the customer is still listening when you describe what will be different.

Again, buyers are not impressed when you tell them their performance will be faster, more efficient or less expensive. Buyers value specifics describing the actual business change you can enable.

Examples

Let’s look at an example of a company that has grown through acquisition. As a result, they now have multiple data centers. You’re selling a consolidation solution.

Bad Example:

Alan, we can help improve the performance of your data centers. Your existing infrastructure is very costly, challenging to manage and inefficient. It uses old, outdated technology that requires expensive maintenance. You have experienced problems in keeping the data centers up and running. In addition, they are ineffective in meeting governmental regulations and protecting your data.

By implementing our server virtualization we will be able to streamline your operations and enhance the effectiveness of your data centers. By investing in our solution you will have state of the art, highly efficient data centers that deploy the latest security technology and which optimize server utilization. With this approach, data integrity is improved and your governmental compliance is better. In addition, we will reduce costs and improve the productivity of the data center operations.

What did that description tell the customer? Not much other than they’re mismanaged. Unfortunately, that is how many sales professionals come across to business decision-makers.

Good Example:

Alan, we can reduce costs approximately 7% per year through consolidating data centers. Currently, you have 8 data centers, each running a different mix of systems. Each requires dedicated, specially trained staff to maintain and monitor. Last year, you had two instances of data loss and four governmental reporting compliance penalties.

We can reduce your number of data centers from 8 to 3. As a result, you can free up people, eliminate space, reduce utilities and reduce maintenance costs. By standardizing on a single platform across those 3 centers, you will be able to prevent data loss and meet reporting requirements by reducing consolidation time from three weeks to five days. Finally, the projected ROI of 22% exceeds your hurdle rate.

What did that description tell the customer? A whole lot more in fewer words.

Why?

· You demonstrated a clear understanding of the current situation

· You specifically explained how your solution can enable business change (improvement)

· You quantified investment impact and provided an ROI parameter

Better yet, you did it without passing judgment on the customer’s operations.

Bottom line, illustrate and quantify the improvement from your solution: don’t just say “we can make it better”.

Where have you changed a customer’s business?

A sales leader at one of our clients recently expressed disappointment at all the excuses she hears on why her team doesn’t call higher in their accounts: “takes too much time,” “executives don’t want to talk to us,” “we just get referred down,” etc.

She then shared her suspicion of the real barrier: they’re intimidated.

Here’s 3 pieces of business acumen for sales professionals to help feel as confident selling to a CFO as any other decision-maker.

Today, More Than Ever

As the client talked through the challenge of selling to executives, we agreed the necessity for such calls has never been greater. Today, approval from executives and business decision-makers is often required for even modest investments.

Not only are today’s sales professionals more likely to find customer executives involved in deals, they’re more likely to lose business if they’re unable to confidently call higher within accounts.

Reducing Intimidation

Preparation is the best way to gain confidence for any presentation. When selling to executives, it’s all about them, their business and their business performance.

Here are 3 best practices to ensure you’re prepared:

1. Know the executive’s prioritized business initiatives
   Arrive positioned to validate and prioritize customer initiatives, not ask the customer to tell you about their initiatives. Management Presentations, Earning Calls and other resources are widely available to expedite gaining customer insights.
             
2. Participate in quantifying the value of your solutions
   Too many salespeople mistakenly believe that computing a project’s projected ROI is something the customer alone must own. This type of hands-off ‘let the customer compute ROI’ is a flawed approach. Prepare by getting comfortable talking about the positive financial impact you can deliver. That’s what executives want to know.
        
3. Role play practice your executive conversation
   If you’re not comfortable with role playing, get over it. It’s the best way to simulate the scenarios that can derail any well-rehearsed presentation and foresee how to effectively respond when the dialogue digresses.
             

Business acumen and financial acumen are essential skills for sales organizations today. Target a key account executive and challenge yourself to engage that person within the next 30 days.

Let us know what you think.

We’re not talking about the Oscars…

Helping customers conduct post-project ROI analyses represents an often overlooked, always useful, means to initiate opportunities.

While accounts commonly invest substantial time modeling ROI when evaluating investments, few conduct post implementation analyses to aid future decision-making.

Why skip this sensible step?

Most customers respond: We haven’t had time to look back; we’re focused on future performance.

Take this 1 question poll to find out how you compare.

Getting started

Measurement strategies are best defined before implementation. Query accounts: What does success look like for you?

Document measurable business outcomes as specifically as you can, and team with the account on how resulting data will be generated.

A new quarterly habit

At the beginning of each quarter, when activity is lightest, develop this habit:

Reach out to accounts that have completed a big project in the past year and ask:  What type of post-project analysis are you planning to assess actual ROI, reasonableness of pre-project assumptions, etc?

Most will answer they’d like to do a better job in this area. They’re probably also curious what story the actual numbers do tell.

Keep the analysis simple

Having any sort of analysis offers value when otherwise there is none, so don’t over think it.

First, recognize the term ROI has lost true meaning. Every organization computes it their way. Yet in the end, all ROI analyses are essentially the same:

Cumulative Returns ÷ Total Investment

3-Step approach

To be fair, measuring ROI of sizable or complex investments can get involved. Enlist others within your organization – services or finance groups – to help where possible.

Here’s a 3-step approach:

1. Determine what point in time to compute the analysis.
   The answer is situational. Target such time when total costs and returns can be reasonably computed relative to the timeframe originally used to justify the investment. Today, only in rare situations should this period exceed 12-18 months.  It may also make sense to compute at multiple points in time.
2. Gather actual cost and return data.
   The easiest way is to start with the customer’s original project analysis and evaluate the accuracy of its assumptions. If unavailable, thus precluding a projected vs. actual comparison, knowing the actual ROI still offers valuable insight for future decision-making.
3. Present results on a 1-page report.
   Why only one page? Your objective is to create opportunity. Produce an executive summary of the broader ROI analysis that highlights lessons learned and validates value. Have supporting detail available if requested.

   MOST IMPORTANT: If there was a variance between actual and projected – and there most likely will be – pinpoint where and why it occurred.

Positioning yourself for recurring opportunity

Today, when even small investments require upfront economic justification, helping clients finish the process on the back end makes for sound business.

Better still, this type of value-added service naturally lends itself to recurring opportunity, and the type of ongoing relationship needed to beat your numbers.

So, was it worth it?

You finally succeeded securing a meeting with a key customer executive. Now what? If you’re going to invest your time, and you’re asking the customer to do the same, then both of you better get a result.

Recognize that every executive engagement must have a clear objective. It does no good to have a meeting with an executive just so you can report you had one.

Your objective in any executive conversation should be to obtain that individual’s sponsorship and support to move your selling effort forward within the organization.

Does this exchange sound familiar?

You: “Based on what we’ve discussed, can I get your support?”

Customer Executive: “Sure!”

What did you really get? Very little.

The executive made no commitment, and there was no defined action coming out of the engagement. Executives are very good at getting rid of sales professionals, especially if they haven’t earned the support.

When you ask for executive sponsorship, ask for it in a way that is:

• Crystal clear
• Understandable by your audience
• Specifically actionable – what, when, how

Examples of asking for sponsorship the right way

Example 1:

“Alan, here’s what I propose. Next week, we’re meeting with a few of your key managers involved in this initiative. If it is OK with you, would you please attend the meeting for the first five minutes and say a few words.”

What happens if the executive shows up and say a few words?

What will the other managers think?

Is that sponsorship? Yes!

The beauty is that the sponsoring executive completely understands what you want:

1. What: Attend meeting with managers, say a few words
2. When: Next week
3. How long: 5 minutes

The executive can do it because they completely understand what you want.

Example 2:

“Alan, to move forward with this project, I’d like to meet with Toni Smith, your VP of Finance, to validate the assumptions supporting our preliminary ROI. I’ll indicate to Toni that we’ve spoken already and validate the numbers with her. I’ll then update you next week. Is that OK?”

What’s good here?

Again, you’ve let the executive know exactly what you want. Better still, all the executive has to do is to say “OK”. From that ask, you’ve gained sponsorship to Toni plus another meeting with the sponsoring executive next week.

To be sure, sponsorship must always be earned. Start by clearing defining your objective so you can ask for it. Otherwise, you may well get nothing.

Executive Conversation has accepted an invitation by the Strategic Accounts Management Association (SAMA) to speak at their 2011 annual conference taking place May 16^th-18^th in Orlando and also to deliver workshops at SAMA University June 21^st-23^rd in New York.  “We’ve enjoyed a long and positive relationship with SAMA,” said Eric Beckman, Vice President of Marketing and Strategy. “We had more people want to attend our sessions last year than we had space available, so we’re pleased to return.” 

Multiple Sessions, Multiple Formats

Executive Conversation will be presenting the full length workshop Introduction to Creating and Communicating Value, and a pair of 90-minute Financial Acumen sessions at the annual conference.  At SAMA University, Executive Conversation will be presenting a 1-day Financial Acumen workshop on June 21^st followed by a 2-day Selling Value to the CXO workshop June 22-23^rd.

Registration and additional information is available at SAMA’s website. 

About the SAMA Conference

Founded in 1964 with over 3,000 members, SAMA attracts the strategic customer management profession’s most influential decision-makers. The association has earned the reputation of being the SAM profession’s knowledge leader, providing members with the high quality resources, training and networking opportunities needed to succeed.

SAMA’s Annual Conference brings together leading experts in the theory and practice of strategic account management, with sessions and forums lead by top consultants and industry leading companies. Join Executive Conversation – and hundreds of strategic account management professionals just like you – to share ideas and selling strategies.