8/9/2019 BBMK_61510121_HP - CSO

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BBMK | HP_CSO | Ramashis Biswas | 61510121

The Sales Force as a Cost Center

HP grouped its various divisions into three large business sectors: Measurement systems,Computer products and Computer Systems. Each division had its own sales force and supportorganizations. As a result transfers between divisions and sales regions were mostly at market

prices. Any allocation of field personnel or capital expenditure amongst these divisions was doneagainst promised increase in profits. These factors contributed in HP treating its Sales Force as acost center, responsible for revenues, field marketing and customer service, as any addition to thesales force could only be done against promises of increased profits.

Another factor that contributed to HP treating its sales force as a cost center was the buying patternin the early 1990s. Customers increasingly bought products from Value Added Resellers, thusreducing the need to have a large and capable sales force. In addition, HP s values suggest thatthey suffered from a mindset of a good product sells itself thus considering the sales force anecessary accessory than a strategic business function.

Implications of the Approach As a result of this approach, the sales force was focused on short term sales quotas, rather thanfocusing on a strategic plan to cultivate accounts and increase long term profitability for thecompany. While this was adequate for servicing distributed channel partners, it impacted theirability to successfully manage large accounts in a dynamic business environment.

A large account is characterized by:

- Significant sales volume- Large decision making units- Geographically dispersed organizational units

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Specialized attention and servicesAs a result, any large account requires a long gestation period and often involves activities whichdo not directly result in revenue generation. This was not possible with the current focus onmeeting sales quotas, which in turn resulted from HP treating its sales force as a cost center.

On the positive side, a focus on cost necessarily kept the sales force lean. However, as detailed inthe case, any pressure on costs also put pressure on reduction of sales force numbers andconsequently demoralized a number of employees who felt under stress.

Problems with the current Account Management Strategy

In 1991, HP reorganized its sales force to give them greater flexibility and autonomy in operatingdecisions. The sales force was divided into three categories red, green and blue each targetinga specific segment of the market that CSO wanted to serve. Also, instead of waiting for RFPs,sales people were now expected to actively spend time and effort in the early stages of a sale tounderstand customer s business and problems. The focus thus, shifted from the product only tooffering a complete solution to the customer.

8/9/2019 BBMK_61510121_HP - CSO

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BBMK | HP_CSO | Ramashis Biswas | 61510121

Diaz also brought in training programs designed to de-emphasize the traditional focus on HP product capabilities and specifications in favor of teaching sales people how to evaluate customerrequirements and suggest ways as to how HP could address them.

The approach helped HP to gain expertise on domains and serve institutional customers moreeffectively. As the case points out, customers felt that HP Sales Reps were now moreknowledgeable about the businesses they serve, rather than only focus on the unit sales that theywere going to make. Additionally, HP could also use the specialization of its sales force to createa competitive advantage for itself and create entry barriers for competition.

At the same time, the focus on extreme customer service led to customers to use the HP sales forceas an extension of their problem solving unit, thus placing unnecessary burden on their time andcapacity. Due to the focus on revenue, sales people were not evaluating accounts and insteadclosing sales as and when they were available. The high conversion rate was a function of the largenumber of repeat purchases that was happening and did not allow HP to get into the innovation

product space. A potential reason for this would be that the sales force in their narrow focus onconversion, were liaising with a SPOC, the IT department, instead of developing multiple contacts

in a buying organization. This was not optimal for HP, as the customer was moving to consolidatethe Repurchase vendor base, in order to pressurize vendors on cost and drive prices down. Finally,the change met with significant resistance from pockets of sales people, who saw themselves aslosing power over their regional fiefdoms. Also, smaller customers, who were used to receiving ahigh level of personal service from HP reps, resented being relegated to channel partners.

Suggestions

- Redesign sales KPIs ad align incentives to overall account profitability margins, rather thanrevenue growth

- Create a separate team to handle innovation engagements. This team could be an adjunctto the regular team and would focus on meeting and understanding motivations for the

business to acquire an HP solution.

- Create a Knowledge Management architecture within HP to collaborate on learnings fromcustomer businesses. Also, increase collaboration between different departments to benefitfrom experience effects.

- Eliminate time drain of the sales force:o Have dedicated teams for customer serviceo Reduce internal silos to streamline operations and time to market