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Are managers losing the battle of sales force turnover?
The battle is on. You have talented salespeople on your team; you know it and your competition knows it. Are you doing everything you can to keep these people? Or do you think turnover is an eventuality of business that you can't control? And even before going into battle, do you know what you will be fighting for?
Employee turnover costs money, about $108,000 per sales representative, according to the Pittsburgh-based management consulting firm Development Dimensions International. If your organization has a sales force of 2,000, all making $48,000 a year, a 10% turnover would result in an annual cost to your company of over $2 million. Now do I have your attention?
So how does a corporation distinguish itself in a highly commoditized and competitive market? Today's businesses are more dependent on their top performers than ever before to innovate and provide services that differentiate a company from its fierce competitors. In other words, corporations rely upon their human assets to survive and thrive. We all realize that turnover can lower productivity, raise financial costs and undermine the morale of those who stay.
Although, under certain circumstances, turnover may help to remove marginal performers, increase productivity, and introduce new talent and ideas, it's not the good things about turnover that have your national sales management concerned. Before we take a look at what the enemy really is and how to defeat it, it is important to determine what caused this war in the first place.
New product launches are arguably the greatest reason for the stellar growth in the pharmaceutical industry. In 1997, just six new product launches each generated $300 million in sales. An analysis of IMS Health Information data illustrates that a significant shift has occurred with respect to first world launches by country from 1994 through 1998.
In 1994, Japan surged ahead with 23 (52%) first world launches, while in 1998 Japan only accounted for four (9%) first world introductions. The growth of new active substances in the United States occurred due to several factors: the increasing acceptance of clinical trials conducted in Europe, the increased flexibility of the U.S. Food and Drug Administration approval process, and the sustained high growth rate in the U.S. pharmaceutical market.
With the increased introduction of new compounds comes increased demand for sales representatives. As a result, the demand to hire more sales representatives and increase penetration into the market is feeding growth in sales forces. A common marketing belief is that increasing the number of sales calls on a customer will result in higher sales. Pharmaceutical selling is no exception. According to data from Newtown, PA-based Scott-Levin, the size of pharmaceutical sales forces has grown by 80% since 1996. In 1996 there were approximately 41,000 sales troops, and by the end of 2000 there were over 74,000 in the field. Firms also required enough experienced district managers to manage this staggering new sales force.
Another reason for this growth is the response to the aggressive reduction in sales force size by many companies in the early 90s through mergers and layoffs. After 1996, American employers met an unexpected enemy: The number of entry-level employees dropped quickly. In "Work Force 2020," Richard Judy and Carol D'Amico explain that one reason for the drop is that the population grew more slowly during the 1970s and 1980s than at any time since the great depression. As a result, new troops ready for battle were harder to find and harder to keep, since everyone wanted them. Census data illustrate that there were 76 million Baby Boomers, and that Generation X, which includes those born between 1960 and 1980, numbers just 44 million. Thus the supply of first-time troops is dwindling as your veterans prepare for retirement.
The first step in preparing your battle plan is to know your enemy. Do you know what or who is the cause of turnover? A questionnaire that I designed was distributed to pharmaceutical reps to discover the motivating reasons for employee turnover. The common assumption is that compensation is the number one reason, but as it turned out, poor management was the main reason the troops deserted. Fifty-one percent of respondents listed poor management as the reason they would seek a new position, followed by "greater base pay" at 24%: a 2:1 ratio.
Now that the problem has been identified, it is necessary to define what constitutes "poor management" and choose plausible suggestions for possible change to solve the problem.
Managers, especially district managers, can be considered the lieutenants and captains of a sales force army, and they have a tremendous impact on the productivity of their troops. Motivation, performance and effectiveness are not entirely in the control of the individual sales reps. In their recent book, "First, Break All the Rules," Markus Buckingam and Curt Coffman stated: "Talented employees need great managers. The talented employee may join a company because of its charismatic leaders, its generous benefits, and its world-class training programs, but how long that employee stays and how productive he is while he is there is determined by his relationship with his immediate supervisor."
If a representative is doing well in his or her job, does a commanding officer need to worry about a possible desertion? It might seem that a successful, well-honed selling machine would be self-motivated and happy, but this is not necessarily so. According to the article "Job Sculpting" in the September 1999 issue of Harvard Business Review, many talented professionals leave their organizations because senior managers don't understand the psychology of work satisfaction; they assume that people who excel at their work are necessarily happy in their jobs. In other words, good performance does not always reflect or lead to job satisfaction. As a recruiter, I have seen a new type of soldier coming into basic training for pharmaceutical sales. The new recruit is well-educated and achievement-oriented and could succeed in virtually any job. In today's business environment, it may be necessary to attract these recruits with signing bonuses and other perks once reserved just for officers. In addition, you compete for these sales soldiers with companies outside the immediate battle zone of pharmaceuticals. So let's assume you are successful in recruiting them; now the question is: "Will they stay?"
Managers need to be aware of the way they directly or indirectly influence their employees' behavior, actions and decisions - especially the way this influence affects retention. In this general's opinion, "poor management" is the result of a manager's failure to properly perform in six key areas: corporate culture, offering everyone a career path and the opportunity to job sculpt, accurate goal-setting, feedback mechanisms, a sincere concern for the employee, and standardized exit interviews. Next month's article will discuss solving the problem of sales force turnover. PR