Creating Sustainable Revenue Growth

October 13, 2020

Michael Wong speaks to Frank Cespedes, a senior lecturer at Harvard Business School, about how biopharma companies should be optimizing their sales and engagement activities for the 2020s.

In this installment of the Harvard Business School Healthcare Alumni Association (HBSHAA) Q&A series, Michael Wong speaks to Frank Cespedes, a senior lecturer at Harvard Business School and author of Aligning Strategy and Sales about how biopharma companies should be optimizing their sales and engagement activities for the 2020s.

Michael Wong: What should biopharmaceutical firms consider as they craft sales and engagement models for the new decade?

Frank Cespedes: I remember that, during an annual HBS Healthcare Alumni Association conference, you mentioned how pharma was ranked last on a list of 25 industries that Gallup surveys annually. We can argue about the justice of those perceptions. In my view, the industry has been a big net gain for health and society for decades. But that’s not the aggregate opinion, and it makes building sustainable revenue more difficult for reasons that also confront other industries.

Start with people. Assembling the right sales team has always been crucial in this industry. But sales hiring is now more important and difficult. Across industries, average turnover in sales ranges from 20% to 30% annually. This means that at most companies the equivalent of the entire sales force must be hired and trained every 3–5 years. Once hired, getting reps up to full productivity now takes more than 9 months.1 Each hire is a bigger sunk cost for a longer time. In the aggregate, sales hiring is often more expensive than many non-R&D cap-ex decisions in bio-pharma companies, but it rarely gets the same attention.

Second, hiring is tougher because sales tasks have changed. On the demand side, customers — including doctors, purchasing groups, pharmacy benefits providers, and patients — now have multiple sources of information about products, prices, and others’ experiences. This changes the buying journey and required sales tasks. Rather than moving sequentially through a funnel, buying now typically involves a series of parallel activities where prospects engage with different groups and information sources to make a purchase decision.

On the supply side, these changes put more pressure on two core aspects of demand generation. Salespeople must add more value when they do interact with prospects, especially in pharma where, over the years, access to patients and providers has become more restricted. The days of a rep as a kind of walking-talking version of a direct-mail flyer, simply leaving the samples and literature, are gone. In addition, understanding how customers navigate between streams in your product category, and therefore when and how to interact with them appropriately, is now a key to effective selling. This requires better links between Marketing and Sales, two groups that have not always coordinated effectively in this industry.

Finally, as in many industries, sales in biopharma is undergoing a sustained data revolution. Data provides more opportunities for improvement. But because companies can measure so many things, salespeople often get lost in the noise. Even worse, some firms fudge this issue with unfocused appeals to “big data.” By 2010, companies with more than 1,000 employees already had, individually, more data in their CRM systems than in the Library of Congress.2 The data has only gotten “bigger” since then. In fact, most sales organizations are currently good examples of Nassim Taleb’s comment that “There is plenty of information. The problem is that the needle comes in an increasingly larger haystack.”3

Do you have recommendations to Sales Leaders about dealing with these changes?

Yes, I recommend that sales leaders start by focusing on the following activities.

First, good hiring starts with knowing what you are hiring for. In business, there is no such thing as performance in the abstract. There is only performance at your company with your products and with yourtarget customers and your value proposition.

Biopharma ranges from drug companies to medical device and equipment producers to service providers. In some sales positions, the top priority may be lead generation and demonstrations. In others, it’s working with a customer to clarify the relevant solution. In others, the task may involve sheer persistence. It’s your responsibility to set priorities and hire accordingly. Then, in the interview process, get multiple perspectives. Some firms get product and service people involved in sales hiring, because they must deal with the orders reps generate.

Second, make sure that those involved in hiring articulate and keep their hiring criteria up-to-date. For example, previous experience is, by far, the most common criterion used in hiring. But in sales, experience can mean many things. Is it experience with a customer group — hospitals or insurance firms or small-group physician practices? Or experience with a technology — a field-service technician hired to sell the equipment? Or with a geographical market or culture — someone from that country or ethnic group who knows, and has credibility within, the customer’s culture? Or experience with the relevant selling environment — an inside-sales rep who has demonstrated she can successfully work in a transaction-intensive context? The relevance of each type varies with your firm’s sales tasks. Make sure the people doing the hiring clarify what they mean when they use “experience” as a criterion. 

Third, better training. US companies spend an average of $1,500 per rep on sales training—about 20% more per capita than in any other function.4 Yet, the ROI of sales training is disappointing. As with public schools, the issue is how that money is spent, not how much.

My work with firms, writing case studies, and research for a new book indicate that, despite changes in buying, most companies still approach sales training and development much as they did decades ago. On-boarding is usually a one-off session where reps are expected to absorb a lot of information in a short time. Then, additional training is often limited to new product introductions or meetings to set quotas. And the training messages are often not delivered when reps can use the tools because of an overreliance on classroom training. Research indicates that participants in traditional classroom-type training seminars forget more than 80% of the information within 90 days.

Sales training should be a process, not an event. Most salespeople have multiple accounts and deal with diverse buying criteria. If all customers sound the same to you, don’t try to make a living in sales because a market does not buy anything; only customers do. Sellers of medical equipment, for instance, must be good at managing and closing complex deals that involve price negotiations and custom applications. In biotech, salespeople must be knowledgeable about the latest research and clinical trials. A training initiative about “health care” which is indifferent to these differences will have limited impact.

Also, a training process should increase productivity, not take net time away from selling activities. Provide just-in-time training when it matters most to reps. New tools can provide timely access to information and in formats that increase comprehension. When video is added to training, for instance, retention of information increases more than six-fold. Other technologies can give reps information when they are in the best position to use it: on their way to customer calls or during a sales conversation. Selling is more complicated. Trying to do it without smart use of these tools makes it unnecessarily complicated and burdensome. 

Any recommendations to C-Suite executives for sustainable and profitable expansion?

Because of the central role of customer acquisition in a business, changes in selling always have wider organizational implications. So many decisions and resource commitments across the firm depend upon sales’ ability to meet demand forecasts. I discuss these implications in some detail in my new book. But here let me suggest one response that senior executives should avoid and one they must do in an altered selling landscape.

First, avoid a false dichotomy. In many companies, too much time and energy are still wasted on debating whether to be online or in-person, interacting via the web or through sales reps. Multi-channel selling is usually the required norm. Right now, many pundits predict that the pandemic means a big permanent increase in online buying and social-media marketing. Maybe not. Look at what was happening before the virus of 2020.

By 2019, usage on the major social-media platforms had been flat for four years in the U.S. In fact, social media usage had declined among Americans younger than 35, and the only age group using Facebook more than in prior years were people 55 or older.5 As a marketing medium, online channels were cluttered, subject to diminishing returns, viewed with suspicion as media attention to foreign hackers raised awareness of cybersecurity issues, and distrusted by many advertisers because of measurement issues and fear of their ads being placed near objectionable content. Combined with the ability to block ads, the growing costs of acquiring customers online,6 the experience of Zoombombing, and controls on consumer data imposed by EU regulators and others, it’s unclear how much buying and selling will be done online in the future. It’s also unclear whether social distancing makes people more eager to transact online or just demonstrates the limitations of buying, selling, and managing virtually. 

“Predictions are always risky, especially about the future.” But it is now and likely to remain a multi-channel world. Ecommerce has been here for over 30 years. Books.com was selling online while Jeff Bezos, founder of Amazon, was still working on Wall Street. Meanwhile, after decades free from sales taxes, ecommerce was 11.4% of retail sales in 2019 in the U.S.7 and in the lockdown conditions of Q2 of 2020, 16.1% — a gain of less than 5%.8

Second, C-Suite executives establish the foundational conditions for whether their sales models support or inhibit strategy execution. Digital tools can help, but only if the C-Suite asks and answers the right questions. Data and technology are never the same thing as an answer to a management issue, and the G-I-G-O rule (“garbage in, garbage out”) still applies. Many firms must redesign their go-to-market processes before they can productively use those tools. Given the changes in buying, a key issue facing firms in digital transformation is whether their customer-acquisition model allocates responsibilities appropriately across the buying journey. Providing tools, without aligning those choices with performance management practices, will not help profits and productivity. Conversely, when the C-Suite does ask the right questions, there are often big gains in two areas in particular:

Increasing selling time. The data vary by industry and company, but most salespeople spend less than 35% of their time interacting with customers, online and offline. Most companies, therefore, have a big opportunity embedded in their sales models. Think about the impact if smart use of digital tools can off-load other activities and increase selling time by an incremental 10-20%. In most businesses, that represents a very significant gain. Further, when improvements lower the total cost of selling activities, prospects that were not profitable enough to target become worth it, increasing your addressable market.

Monitoring online/offline interactions. As a multi-channel approach becomes the norm, digital tools are important in measuring and evaluating where, when, and how to deploy online and offline efforts. For example, time-on-site and page views are often associated with positive engagement, when they may be a result of a confusing or slow-loading site. In many subscription sales models, a “win” is treated as synonymous with the “last click” when the reality is that the purchase was motivated by a combination of sales and marketing activities throughout the buyer journey. Digital tools can shed light on where in-person selling efforts have the biggest impact and so where and when your salespeople should have a conversation with customers versus content marketing or other media.

The ultimate economic rationale for marketing and sales investments is a “baseline-lift” valuation— a measure of the increase over existing sales attributable to a specific initiative. That also applies to digital transformation in sales. But you will never know what that lift is or isn’t unless you can link the investment to the customer-conversion dynamic in your sales model and that’s a management, not a technology, issue. Further, the lift from a given investment will inevitably alter. You rarely generate three times current profits by doing three times whatever got you to your current state.

Frank Cespedes is a senior lecturer at Harvard Business School and the author of Aligning Strategy and Sales (HBR Press). His latest book is Sales Management That Works: How to Sell in a World That Never Stops Changing.​

Michael Wong is an Emeritus Board Member of the Harvard Business School Healthcare Alumni Association.

Notes

1. CSO Insights: 2018 Sales Talent Study (Miller Heiman, 2018).

2. “Big Data: The Next Frontier,” McKinsey Global Institute Report (May, 2011).

3. Nassim Taleb, “Beware the Big Errors of ‘Big Data’,” Wired (February 8, 2013)

4. The Sales Training Dilemma (Sales Performance International: March, 2019).

5. Edison Research, 2019 Social Habit Report: https://www.convinceandconvert.com/social-media-research/social-media-usage-statistics

6. See “Unit Economics Aren’t What They Used To Be” at https://tomtungunz.com/cac-increase/

7. http://www.census.gov/programs-surveys/e-stats.html

8. “Warehouse Demand Spikes as Retailers Adapt to Pandemic,” Wall Street Journal (October 2, 2020).