Sales Management at Hanover-Bates Chemical

Sales Management at Hanover-Bates Chemical Corporation

Taking over the least profitable sales region in a company accustomed to exceptionally high margins despite the commodity-like status of their products is one of the most challenging sales management roles anyone can take. James Sprague steps into this role after the previous sales manager was most likely forced out or asked to leave, and Hank Carver, a sales representative with over 34 years of experience is passed over for the promotion. Yet the hard feelings that Hank has over not getting the manager job is the least of James Sprague's concerns as his region is in last place when it comes to profitability. Throughout this analysis the factors contributing to this low level of sales performance relative to profits are analyzed, including root cause analysis and recommendations for improving performance.

Analysis of the Northeast Sales District

In analyzing the factors contributing to the Northeast Sales District's lack of profitability performance it can be seen that the Sales Reps are spending the majority of their time on B. And C. level accounts, which by definition don't generate nearly as many sales yearly and often are purchasing lower-margin products. What is happening is that the 1998 sales development plan has been completely ignored and Sales Reps are going to accounts that they most likely can sell on relationship or habit alone. This shows that the Sales Reps in the Northeast are not as disciplined in their call strategies as North Central and are most likely relying more on an account maintenance strategy over a penetrate-and-radiate sales strategy (Kuster, Canales, 2008). In short the Northeast is most likely taking refill orders of plating chemicals and not really growing sales into the more profitable account areas. Table 1: Potential Accounts, Active Accounts, and Account Call Coverage.

Table 1: Potential Accounts, Active Accounts and Account Call Coverage

Potential Accounts

Active Accounts

Account Coverage

Northeast

A

90

8.14%

53

9.20%

1,297

20.06%

B

34.45%

36.46%

3,051

47.19%

C

57.41%

54.34%

2,118

32.76%

TOTALS

1,106

6,466

North Central

A

60

7.10%

42

9.55%

1,030

20.82%

B

33.85%

41.36%

2,618

52.92%

C

59.05%

49.09%

1,299

26.26%

TOTALS

4,947

This point becomes every clearer when sales by category and profit by category are analyzed as shown in Table 2: Analysis of Sales and Profits by Category. What this analysis shows that the amount of time dedicated to C-level accounts is draining margins while the secret of North Central's success is the ability to generate a disproportionally higher level of revenues from the B-category of accounts. This also shows that North Central Sales District has significantly more call strategy discipline and focus than Northeast. When the fact is considered that the Northeast has 6 sales reps and North Central only has 5, the implication of sales productivity and profitability become even more significant. Add in the fact that the Northeast sales manager's salary of $70,000 was the highest in his position within the company and the point of just how far this region has fallen in terms of effectiveness and productivity given the costs associated with running it.

Table 2: Analysis of Sales and Profits by Category

Sales By Category

Profit By Category

Northeast

A

1,830

26.86%

28.73%

B

3,362

49.35%

50.28%

C

1,620

23.78%

20.98%

TOTALS

6,812

North Central

A

1,502

24.19%

25.19%

B

3,404

54.81%

55.34%

C

1,304

21.00%

19.47%

TOTALS

6,210

The root cause of these factors can be attributed to the previous sales manager's lack of trust and poor attitude regarding the 1998 sales development plan. The performance problems of the Northeast Sales District however are more fundamental than that as sales reps are most likely calling on the smaller job shops that churn more than any of the other businesses in this industry, as can be inferred by the differences in account management statistics for the C. category of accounts over time. With high churn and relatively low per order sales rates (assumed from the data in the case) the C. category of accounts are more of a waste of time to going on sales calls to than many are worth in terms of profitability. This is becomes clear from an analysis of the case and the two tables. Sales Reps will resist automating these accounts as they represent their comfort zones. They can count on selected smaller job shops to place replenishment and refill orders, and the sales reps can still get as decent commission and they don't have to work that hard on their sales skills or attempting to penetrate new accounts. In short, the Northeast Sales District is on auto-pilot in terms of sales strategy and needs to be given entirely new and more challenging objectives to shift the focus of the teams to more profitable selling strategies.

Recommendations

James Sprague needs to motivate his sales team to re-align their selling strategies and he has to earn their trust and respect as well. Hank Carver being passed up for a promotion looks like age discrimination to the other Sales Reps and this decision by senior management will have undermined Jim Sprague's ability to gain trust as well. For any sales manager to effectively introduce shared vision and drive accountability into an organization trust must be attained first (McNeilly, Lawson, 1999). Jim Sprague needs to focus on communicating his vision for the sales district and also give each sales representative more autonomy, a chance to master the sales development plan, and a sense of purpose through incentive programs. Combining autonomy, mastery and purpose are the three determinants of increasing ownership for a job and critically important for long-term growth to occur (Kuster, Canales, 2008). Second, the Sales Reps in the Northeast Sales District need to be held more accountable for the distribution of calls they make by account category and report back on a monthly basis how they have allocated their time. This will need to be reported company-wide so that the senior management has visibility into this as well. Jim Sprague's effectiveness as a manager in re-aligning the amount of time spent with each category of account will be tested by this strategy yet it must be done if the profitability of the Northeast Sales District is going to be turned around. Using transformational leadership strategies Jim Sprague needs to motivate the Sales Reps to accomplish this and explain why it's critical. Reporting purely to transactional leadership (Forsyth, 1986) is not going to be as effective as recognition- and cash-based incentives. Third, the company needs to consider re-aligning the overall compensation plan as well to better define account strategies and profit-based selling strategies as well. This would make a very significant difference in how the Northeast Sales District would perform. A revised compensation plan would also be used for redefining the mix of products sold with heavier emphasis on the most profitable including CHX Chromate Dip (CHX) which has a $440 price and contributes $180 margin. Indexing bonuses to profits is commonly done in commodity-based industries to gain greater sales effectiveness on these products. In other industries cash incentives or spiffs would be used yet in the Hanover-Bates Chemical Corporation's case, it needs to be a much more fundamental shift in priority within the overall sales compensation structure to get the sales teams in all regions focused on more profitable products. Finally Hanover-Bates Chemical Corporation needs to concentrate on realigning the sales compensation plans to be more focused on selling the entire mix of products and reoriented away from selling individual products. The solution selling strategy so successful in other process-based industries needs to be an area of focus for the company as well. When this is integrated into the sales compensation plan and accountability for selling to profitability and not just sales, the entire company's profitability will increase. This will also give Jim Sprague an opportunity to get his division focused not on the lowest performing accounts but the most profitable ones.