Sales: Process or Art?

ManOboe Partners is admittedly a quantitatively and analytically driven consultancy, with our recommendations focused on making strategic changes that leverage rigorous analysis and information. We attempt to change our client’s internal behavior and external perception by helping create a more intelligent organization. We have also primarily worked with sales organizations, many who are looking to become more disciplined in their approach to their clients.

This has always been an interesting intersection since traditionally sales has been considered more of an art than a science. Writers like Dale Carnegie, Zig Ziglar, and Og Mandino, whose books are about building relationships, understanding customer needs, and the art of persuasion, are held with reverent regard by many in sales. We were recently debating this and we challenged ourselves a bit. Are we missing anything significant in our quantitative approach to rethinking sales organizations? Worse, is our methodology possibly harming the delicate juju found in top sales teams?

We feel that our approach is unique in the industry because we are taking into consideration not only the tangible impact of a data driven organization, but we also incorporate strategies that help foster intangible sales assets as well. Our mantra from our beginning has been that creativity is our top virtue and that collaboration is a critical element in organizational strategy.

A recent article in the Harvard Business Review called Dismantling the Sales Machine validated our approach. The authors argue that a certain process-driven discipline has dominated current sales management thinking, based on scorecards and activity metrics intended to ensure compliance to an “established optimal behavior”. They state that sales managers can gain significant advantages by shifting emphasis towards “judgement of individual reps” and manager’s focus on “providing guidance and support rather than inspection and direction”. We agree. We feel that managers create outperforming teams by nurturing creativity and collaboration, which can be achieved by defining very clear strategies and goals, then using information and productivity tools to make client teams more effective. Managers should think of data and analytics as ammunition that can direct teams to perform in a more coordinated and intelligent way.

We feel that oversight metrics, while they can provide certain “fear” motivators, have the potential of harming a sales team in the long run.

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Does Your Firm Suffer from Information Disadvantage?

In many of our client assignments, we’ve been challenged to solve significant information gaps. Managers understood that they were significantly behind their competitors in leveraging information, but they didn’t really know where to start in evaluating their deficiencies.

We came up with a scorecard methodology to evaluate 5 key areas that make up an information platform. We approached the evaluations party on how well the information platform was built, but also partly on whether what was being built and used was aligned strategically with the goals of the organization. The 5 key areas are:

Info Disadvantage - Chart

1) Information Capture: how information gets captured or procured. Is the firm capturing the right internal information from their systems or personnel, and are they procuring the right third party data?

2) Data structuring and integration: how well the data is organized, structured, and integrated with other information within the firm. Are the data from different sources brought together to complement each other and matched so that similar information is well mapped and accessed together (for example information about a certain client)?

3) Data availability: making the data made available for review and analysis. Are tools built or made available for analysts and data scientists to explore the data?

4) Information context: enriching data and creating metadata to give more meaningful cuts and views of information that is more relevant to managers. This is related to the data structuring  point above, but differs in that much of this context is business-specific and in many cases need to be defined by the business, specifically product and sales managers. Are there consistent and global definitions in order to make sense of the information, for example consistent definition of products and regions?

5) Information delivery: creating tools for managers and salespeople to access, receive, and interact with their information so they can use it to enhance their business. Are these tools easy to use, intuitive, fast, and up-to-date.


What’s interesting is to note how many of the client’s past projects have identified and attempted to expensively address deficiencies in one or two of the five key areas but have often rendered sub-optimal results because problems in other areas were not addressed. In a lot of instances, for example, large investments have been made in information delivery, creating front-end tools to dress up information, but lesser investment in cleaning up the structure of the underlying data or not procuring 3rd party data that could add significant value to existing data.

Firms need to strive to realistically evaluate their platforms in all five fundamental areas and make sure that they understand, and invest strategically, in each of those areas. The knee-jerk response by managers is to argue that it would be prohibitively expensive to address the build-out of the entire platform. Our response is that you don’t have to build out all the areas in full and and they don’t have to be done at the same time. If you target certain specific deliverables that involve development across all five areas, you approach this problem more cohesively and inter-dependencies become much clearer. Also this will most likely be a multi-year project, so it should be planned and invested as such. The project also should be designed to include an element of flexibility to allow for evolution of requirements as the business changes over time.

With this broader approach, an organization can ensure that projects they embark with will be more successful and valuable to the organization.

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CRM System: Buy or Build

LobbyEvery client-centric organization needs to adopt a CRM system of some kind. Many managers realize the clear value of a CRM system will have increasing productivity, institutionalizing client relationships, and providing better management intelligence about their customers and sales teams. The challenge then becomes deciding what kind of system they want to to have, leading then to an overwhelming series of options that are available to them.

Technology groups embedded within organizations large enough to have them, will be inclined to want to build their own system rather than rely on an off-the-shelf solution. They are ‘developers’ by trade. Most organizations though will opt to adopt a vendor product. The minute that managers begin the investigation process on vendors, they get quickly overwhelmed with options, benefits, and features. Often they feel that to get what they really need, they should just hire an unassociated group of developers to build them their optimal system.[more…]

Managers end up unsure as to what the ultimate solution should be. A CRM system decision is one that managers must live with for a long time. They want to make sure they are making the right call. I’ll outline some key considerations when making the decision of buy or build their system

1) How unique and complex is the organization’s business model, and ultimately their information model?

2) What is the organization’s capacity to support and enhance an internally grown system?

3) Of the available vendors, are their any that specialize in workflows and requirements of an organization’s specific industry or sub-industry?

4) How financially stable are the vendors that provide solutions to the organization’s industry?

5) Are there consultants or subject matter experts available internally or externally that can function as trustworthy and unbiased advisors who can help navigate the options?

Pros and Cons

Custom built solutions allow for the greatest flexibility for specific requirements, especially if there are particular nuances related to an organization’s unique business model or market differentiation. Custom solutions also have more agility to integrate with already existing systems and data. They provide the potential for the biggest competitive advantage. None of your competitors will have this tool. The biggest downside, of course, is cost. Firms will need to commit capital for the build-out, plus a ongoing costs for enhancements and support.

Vendor solutions will in most cases provide the majority of requirements if industry-specific solutions providers exist, and for most financial sub-sectors they certainly do. Most are out-of-the-box so require very little configuration. The challenges come when a firm has specific things they want to do, but are constrained by the technical limitations or development schedule of the vendors. It’s hard to get a clear understanding what the true advantages and disadvantages are with just direct engagement with the vendors. Their demos give very little insight on what their deficiencies are, or which vendors are better than others.

There is no one simple answer to whether it’s better to build or to buy. Each organization is going to have their own unique CRM and information requirements. If there isn’t in-house expertise, we highly recommend finding someone who can help navigate the waters.

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Strategy in the New Year

AngelThe New Year is upon us. I always view these last days of the year as a time to think as broadly and as strategically as possible about the coming few years. Many managers have just been through the planning and budgeting “ringer” in preparation for activity in the new year. As important as this process is in directing limited resources to the largest opportunities, I’ve always felt that this process sometimes limits strategic thinking. 

I always like to hark back to an HBR article titled ‘Strategic Intent‘ by Gary Hamel and C.K. Prahalad. The authors argue that many firms fall into a pattern of competing through imitation, and that a great deal of the planning process involves evaluating the competition, then deploying resources in areas that managers feel they can tackle share away from their rivals. Not enough time is spent seriously thinking about how to create a focused winning culture that drives radical change and innovation that not just gains marginal advantages over the competition, but drives to create a new playing field that the company can dominate. This drive is what they call “strategic intent”.[more…]

Strategic intent, the authors argue, is not a concept that can easily fit into a traditional planning process, because the stringent rules prevent stretch ambitions from being approved. The quote that has stayed with me most is that “most managers, when pressed, will admit that their strategic plans reveal more about today’s problems than tomorrow’s opportunities”. Industry leadership is something that can definitely be planned for, but it has to be an explicit goal that the organization adheres to and is infused into the culture. 

I talk about developing strategic intent quite often in client engagements, but admittedly it is the one concept that raises the most amount of skepticism. It sounds like consultant-speak that points out a rather obvious concept of a having a corporate goal. Even when there is agreement that an overarching strategic goal is missing and needs to be defined to drive the business forward, the conversation becomes fluffy, abstract, and hard to link back to the specific tactics that need to be implemented. My recommendation in these instances is to define a stretch goal, although not one that is limited to the existing resources of the firm. This has to be an ambitious goal that if achieved places the firm in an enviable spot relative to its competitors. Next there has to be a plan put in place to not just clearly communicate that goal to everyone in the organization, but also to get buy-in from all levels. It’s so important to give a sense of urgency and also a perception of flexibility and support to innovate. Overtime an organization will create new advantages that it can compete with. 

This leads, in a round-about way, to the message I want to leave you with this year. As we start the new year, plans and budgets in hand, we should constantly remind ourselves what it is that we ultimately want to achieve in the long-run and ask whether what we are doing on a day-to-day basis is in line with those goals. Taking some time to reflect on our true strategic intent should clear our thinking and allow us to be more creative on our approach. 

I wish everyone a Happy New Year and see everyone on 2014!

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Truths in Cost Management

Sunny cloudsOne of the most dramatic changes that has occurred in Institutional Banking since the financial crisis hit in 2008 is an increased focus on management of costs. This is isn’t anything incredibly new. Financial firms have been focusing on cost management for years. What has changed is an increased intensity and urgency due to margin compression driven by increased regulatory pressures and more aggressive competition for a quickly shrinking client wallet.

Many banks have created teams fully dedicated to the analysis of their costs. We’ve worked with a few of those organizations to help them define the scope of their work. It’s important to determine upfront what kinds of costs will be targeted for analysis and what will be on the table for aggressive management.[more…] The sizing of the initiative is critical in order to make sure that expectations are in line with what can realistically be achieved. Senior management have to be on board with most of the changes that the analysis identifies. It’s all too common for management to have high hopes only to back down when they perceive that they are cutting too much into meat and bone.

It’s important to get comfortable with a few truths:

  • Cost efficiencies in some cases will only come from additional investments in the platform and will be realized only some years later.
  • Cutting costs implies in many cases a cutting of some revenue streams
  • The perceived “fat” that people talk about in an organization is not a discrete element separate from the productive “meat and bone”. Most banks now are running pretty lean, so the exercise is one of objectively evaluating prioritization of businesses, functions, and initiatives.
  • Every business or project has their merits which should be fully understood before any rash decisions are made about them, especially…
  • Projects with longer horizons often have less potential impact that is less visible on the organization so they have higher risk of being cut. The long-term strategy of the organization should weigh heavily upon evaluation of these.
  • Cost and profitability analyses use a great deal of assumptions to come up with their results. All layers of management who are part of the cost management decision-making process must be well-versed in these assumptions to ensure that implications of decisions are well understood.

I’ll be writing more about cost management in the next few posts as its a topic that seams to be top-of-mind for many managers as they plan for 2014.

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Velocity of Information

Photo Aug 28, 5 26 15 PM (2)An interesting concern that we often have to address is the worry that manager and salespeople risk being overwhelmed with information. Most people can barely keep up with their existing information flow. What would new screens and automated emails do to their inboxes?

We discourage people from looking at information as a collection of valuable pieces of data that have to be stacked and reviewed, like a stack of magazines. We think it more like a river of information that doesn’t need to be read every time it updates, but rather the flow increases the perceived proximity to the most current information.

Proximity of Information

“Proximity” is the operative word. Decision-makers at all levels need to feel that the information they need is close and easy to acquire. This could translate to several different delivery scenarios depending on factors such as sophistication of the userbase, technology available, volume and rate of change of the information.

The analogy that we like to use is that information is the lifeblood of any dynamic organization, so if information flows at the pace of molasses, the organization will stagnate. What’s interesting about this perspective is that we are actually striving to reduce the value of a single given piece of data crossing someone’s desk. An email with a snapshot of revenue information that is only made available once a month, for example, is going to be held at higher value relative to a weekly or daily revenue alert with the same information.

Understanding Molasses

What holds information from flowing more quickly isn’t bad intentions, even though this tends to be an often cited cause.  It’s usually a combination of legacy behaviors ingrained in people’s habits and routines, as well as embedded hierarchical structures and legacy technology issues.

Because it’s a combination of things, not just one, it’s difficult to find one simple solution. By tackling only technology, for instance, and not addressing the other institutional obstacles, the promise of realizing higher information velocity may not be realized.

Getting everyone comfortable with the idea that what matters is increasing data flow is critical to dislodging information and weakening the molasses.

People need to feel that they can easily dip into the information flow naturally and not stress about “missing” or “losing” critical data points. Increasing information “velocity” increases the ease in which people interact with knowledge within their firm.

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Costs of Inadequate MIS

2013-08-24 17.13.49It’s surprisingly common for firms to attempt to drive cost savings by defraying investment in management information systems (MIS). In short-term budget planning it makes sense, especially in recent year with increased scrutiny on expenses and rerouting of IT expenditure toward regulatory requirements. But this can’t be part of a longer term strategy. There are significant costs, some hidden and some explicit, that accumulate every year that investment in MIS is deferred. These costs should be factored into any technology investment decisions.

The lack of visibility and transparency that comes from lack of correct management information systems creates three different types of costs: explicit, hidden, and opportunity costs. I’ll talk about each one and provide some key examples.

Explicit Costs

You can quantify how much you are spending to plug your MIS hole. If taken in perpetuity, these costs will greatly outweigh any projected investment in new MIS.

– Increases in staff to cobble together and produce information and reports. Firms with inadequate systems will have armies of analysts often doing low-value work, often taking hours and manual manipulation. It’s a useful, and often shocking exercise to determine a “cost per report” metric.

– Higher risks of transaction errors driven from either inaccurate data that drove a bad decision or critical pieces of information missing not available (or hard to attain) at the point of transaction.

– Regulatory costs in the form of fines and contingencies due to non-compliance or breaches. Without systems to provide transparency in rules and limits at the point of a transaction or automatically flag breaches or potential breaches, firms can face massive penalties.

– Increasing costs of infrastructure decay. This is probably the cost that’s most ignored and misunderstood. Managers assume that no investment means no cost, which is wrong. It’s like owning an old, beat-up car – the cost to keep it running can be extraordinary. The main drivers of this cost are:

  • Increased staff and programmers to create band-aids/patches to fix tactical issues
  • Increased infrastructure costs maintain an antiquated platform with “band-aid sprawl”
  • Increased future cost to replace a complex patched infrastructure

Hidden Costs

Hidden costs will of course not show up on an income statement, but they are real and insidious. They can have a lasting negative impact on the performance, client relationships, and on the firm’s culture.

– Loss of staff productivity. It’s not the job of front-office professionals to hunt down data and they are often really bad at it. Any time they waste tracking down information is less time they are talking to clients, creating products, and enhancing their work. Also, there’s a huge risk that they use wrong information or inaccurately interpret it leading to confusion and wrong decisions.

– The frustration level from staff in firms with bad MIS can be high. People who feel they are not being as productive as they could be are usually not satisfied with their jobs. It makes it enticing to go to a competitor. Senior managers lose a lot of credibility from their staff, making it extremely difficult for them to execute on their strategies.

– Loss of credibility with clients, which is the death knell for a client-centric organization. Clients will see that not only is the firm not managing their own house well, they also won’t be able to fully understand their needs. Clients want to be engaged with the “right” conversation that helps them solve their problems and make money. The “right” conversation emanates from the right set of information.

Opportunity Costs

In our current information driven economy, having the right piece of information or insight at exactly the right time can be a huge competitive differentiator. Firms lacking in the right information systems and processes will constantly miss opportunities, principally:

– Opportunities driven from day-to-day information flow that can be missed, such as market, competitive, client or product data. Lack of timeliness to action will allow competitors to scoop up the opportunity.

– Cross-selling opportunities, which are completely dependent on good information flow, especially information flow across business units within a firm. These opportunities can represent the biggest upside to any organization.

Strategic Stagnation

The best way to think about inadequate MIS is as if an organization is gummed up by molasses. Information is not allowed to freely and quickly travel to where it is most needed. You end up with what I call “strategic stagnation” where, in spite of the most well-intentioned and detailed strategic plans, an organization without the proper information tools will not be able to efficiently execute and will stagnate.

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Strategic Trends for Global Asset Managers

2013-07-03 16.30.18In the years since the 2008 financial crisis, we have seen major shifts in trends influencing growth in the global asset management industry. Four key changes are significantly affecting strategic thinking in the industry:

  • A continuing movement towards bifurcation of vehicles that provide “alpha” and “beta” exposure to market returns. This isn’t by any means new news, but we feel that this is clearly understood by professional investors, but is not fully understood by most non-professional investors. The impetus to find value for fees paid will accelerate the demand for “beta” products further which will cause a sea-shift in assets. Interest in index funds and ETFs will increase even more than they have in recent years.[more…]
  • Increased volatility in the market coupled with increased difficulty in identifying uncorrelated returns will push many alternative strategies into the limelight. Expertise in global emerging and frontier markets, private equity, quant and derivatives-based strategies are becoming the core way of generating any portfolio’s “alpha”. The game is up for those managers that are trying to sell what is effectively beta as alpha.

  • A global macro context is becoming core to any portfolio strategy, including those that bill themselves as focusing on a very targeted market. Even some of the most basic fundamental domestic equity portfolios are now subject to impacts from global markets. It’s becoming less relevant to specialize in one country, region, asset class, or sector. Asset allocation is becoming a more important overlay, especially in understanding movements in correlation over time and ability to shift strategy as correlations shift. Because of massive US corporate investment in China, for instance, many funds that bill themselves as US equity-centric may actually have huge China exposure and need to be managed as such.

  • It’s becoming much more imperative to be able to clearly communicate a firm’s expertise and points of differentiation. The days of asset managers being abstract or vague about their investment philosophies are quickly coming to an end. Many hedge funds and other specialized firms will gain favor because they provide unique value propositions that are not currently offered in the marketplace. What will be critical for their success, though, is the creation of a strong, recognized brand and clear messaging about their differentiation. Additionally, they will need to develop a highly efficient sales organization that can carry that message to investors. As successful as some investment strategies are, the ability to clearly (and sometimes simply) articulate why these strategies are worth investing in is just as important. This is no small effort and should be a core part of the business strategy.

We feel that there is still significant “life” to the traditional fundamental asset management model, mostly because of the huge asset pools that sit in those strategies today and the inertia built into these. But we think that this will shift very soon and very rapidly as competition accelerates and the industry continues to consolidate and chase limited opportunities. The firms that prepare for these shift will be the ones to thrive.

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What Does It Mean to ‘Collaborate’ in an Organization?

WalkWe have been having a lot of discussions recently about the definition of collaboration. For most of our clients, increasing collaboration is one of their ultimate goals. But what does it mean to increase collaboration? At first thought, it would seem obvious what it is: increasing the amount of communication exchange among team members in order to identify new opportunities to increase business. The natural next step that sprouts from this conclusion is to invest in technology solutions that allow for an exchange of information: CRM, instant messaging, collaboration sites like Sharepoint.

These tools facilitate collaboration, but they don’t in and of themselves create or inspire collaboration. Collaboration is at its core a cultural phenomenon. Collaboration springs from the development of a community that has shared interests and common goals, and clear visibility of the path to take to reach those goals.[more…] Organizations need to develop a culture where everyone buys into the idea that sharing information benefits the greater good of the firm. Leadership sets the cultural agenda, by creating principles and providing guidance on expected behaviors.

At this point in the conversation is when we start to lose our more systematic-minded peers, who object to the abstract direction of the discussion. In their view, people by nature want to collaborate but there are systemic barriers that prevent the free exchange of information. They feel that these barriers can be broken down with the use of technology. They state examples of how new media has expanded the ability to share information which, in the cases of Wikipedia and Twitter for example, are being done with little financial incentive. It’s human nature to share.[more…]

It’s important to try to balance the two dimensions; they work in tandem. You can have an organization where everyone buys into the benefits of sharing information, but without the tools that enable a free, relevant, and targeted exchange, people will easily give up. In firms with the right culture but the wrong systems, people will want to collaborate, they can’t, and they will feel guilty about it everyday. Alternately, you can have an organization that spends millions of dollars on any variety of tools to talk to each other, but no cultural transformation to buy into a broader benefit, then the investment is completely wasted. Worst of all, these are usually recurring costs.

The leadership of any organization needs to understand how interrelated these are and have a coordinated plan to address them. In the simplest terms, they represent the ‘why’ and ‘how’ of collaboration.

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Fund Consolidation for Asset Managers

OtterYou hear a lot of fan fair when an asset manager or hedge fund decides to launch a new fund. It’s rare though to hear when a manager has to reduce the number of funds they manage, although it happens much more frequently than you think. There are four main drivers of fund consolidation:

1) Large merger or acquisition creating redundancies in product offering. With a slowdown in merger activity across the financial industry this has become rare, but if you listen to pundits recently, this may change soon.

2) Severe loss in assets under management which can make the maintenance of multiple strategies, supported by multiple teams, impractical.  While headline-grabbing fund blowups get all the attention, often simple termination of a large pension mandate or transitions of sub-advisory relationships will precipitate a change.[more…]

3) More recently, sentiment and correlation in the markets have been making many fund strategies behave and appear similar, with similar long-term performance and risk-return profiles, that may not justify maintaining them over time.

4) Many fund strategies have become irrelevant in the market place due to other low-cost options like ETFs.

Once the commercial realities have sunk in, a manager is faced with the difficult task of evaluating their existing fund offering, determining which funds will be targeted, considering the implications of eliminating the targeted funds, then implementing the consolidation.[more…]

What to Look For

Consolidation of fund offering is not as simple as ranking all the funds and singling out the worst performing ones to get rid of. The approach should be more involved. Key questions to consider are:

– How does that fund fit within the overall strategic direction and investment philosophy of the firm?

How profitable is each specific strategy? From a cost perspective, even a fund with relatively good performance, may be too expensive to maintain.

Is each fund differentiated enough in the marketplace? This question addresses how commercial the fund is and how sustainable that is over the long term.

Can assets be migrated to other strategies that achieve same objectives? As most asset managers grow, there’s a tendency towards ‘strategy creep’, where new funds emerge, new model portfolios and strategies are tested, and overtime the lines between funds blurs.

Will having fewer funds allow you to leverage fixed platform? Once downsizing is considered, there may be an opposite tendency to make radical refocusing and extreme consolidation. Managers have to make sure that what they keep can support the existing fixed platform.

Are there any significant synergies with other funds that may be at risk by eliminating a particular fund? Many specialized funds may be small, expensive, and have high variance, but consider how alpha generated with these funds feed into broader strategies.

Closing Funds

Once the funds are identified, there are a number of steps to unwind the fund entity and transition the assets in those funds, much of which are too technical for this post, but it’s important strategically to identify what options there are for directing the assets in the fund:

1) Liquidate the assets and return proceeds to the investors. Popular with hedge funds, but may not be the best strategy for more traditional funds.

2) Transfer funds to similar strategies, as long as investors approve and there are no fiduciary issues with this transfer. This is the most desirable option because the firm keeps the assets under management and associated fees.

3) Sell or transfer funds to a third party manager who may have better capabilities to manage these strategies. In some cases, the manager can negotiate a sub-advisory or distribution arrangement with the third-party manager that can be mutually beneficial.

Consolidation Strategy

Reducing the size and scope of a fund offering is typically not the most appealing strategy for an asset manager who is accustomed to growing the size and scope of their business, but in many instances it may be the most profitable and strategically imperative move in an increasingly competitive market.

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