Tripling Sales: A Conflict

Tripling Sales: A Conflict

by Mark Chussil

The story of a conflict

I’m going to tell you the true story of a Fortune Global 200 pharmaceuticals company with a conflict between top management and product management.

The conflict was about sales goals. The company had recently introduced a product, and top management wanted the business to triple sales of the new product in a year. That was clearly a stretch goal but it was not unheard-of in the industry. Product managers didn’t mind having a stretch goal, of course, but they wanted to be sure that the goal was achievable. The conflict is classic, and it’s rational on both sides.

How would you bridge the gap?

I’ve discussed this case with many groups of strategists around the world. I’ve asked them how they would bridge the gap between top management and product management. The answers I’ve heard fall roughly into two categories. Think for a moment about how you would bridge the gap, and then compare your answer to what I’m about to present.

Settle or negotiate

The first category of answers I’ve heard we may broadly characterize as being about settling or negotiating the difference between top management and product management. This could mean bargaining: let’s split the difference. It may be about beseeching: we really, really have to hit this number. It may be about persuading: we are nice people, we have done a good job for you before, give us a break. Those may not be the exact words that people would use in a corporate environment, but that’s what typical ideas in the first category boil down to.

Citing magic numbers

The second category of answers is about citing magic numbers. Anecdotes: I know a business that tripled its sales. Benchmarks: let’s see how often other companies triple sales in our industry. History: we have achieved triple sales in some products in the past. Again, not necessarily the exact words people would use, but typical ideas in the second category. They amount to existence proofs: it has happened before, therefore it can happen now.

Solve

Notice that neither settle nor cite involves any analysis or discussion of what’s possible for this business. They are merely ways to bridge the gap by coming up with a number that both groups, top management and product management, will agree to.

This company took a different approach. They decided to solve the problem and they called me in to help. (Calling me in was not what they did right. We’ll get to that.) Our crucial leap was to abandon a single-number target (triple sales) and, instead, simulate scenarios and possibilities.

Strategies, scenarios, and simulations

First, we developed several potential strategies that this business could follow, varying in their details and aggressiveness. We listed strategies that the business’ competitors could deploy, also varying in details and aggressiveness.

Next, we developed scenarios by taking every possible combination of the business’ strategies and its competitors’ strategies. It was a substantial number of scenarios that went far beyond conventional best-case, worst-case, and most-likely case analysis. (See also “The How-Likely Case.”)

Finally, we used a computer-based simulation to estimate the performance of the business in each scenario. In effect, we ran a series of business war games in a computer.

Here’s what we found.

It was indeed possible for the business to triple its sales, but only if its competitors were benevolent. If the business used its most-aggressive strategy and its competitors used their least-aggressive strategies, then the business could triple its sales. In any other scenario, the business would fall short. In fact, under some scenarios the business would barely increase its sales at all.

Top management and product management agreed that if this business followed its most-aggressive strategy then it was extremely unlikely that its competitors would follow their least-aggressive strategies. In other words, they agreed that tripling sales was highly unlikely to happen. They also learned what sales growth reasonably to expect under various scenarios. That information let them set reality-based sales-growth targets, and to know how and when to modify those targets.

That’s not bad. It’s also not all. We have more to learn from this case.

Triple lessons

This case teaches us three lessons.

Decisions versus outcomes

First, a strategy is a decision, not an outcome. I know that may sound obvious. But listen to the way people talk: if we got a good outcome then we must have had a good strategy, and if we got a bad outcome then we must have had a bad strategy.

The thing is, our outcomes depend on more than what we do. They depend also on what our competitors do, on events in the market, on the general economy, on the weather, and so on. Of course our strategy has a major impact on our outcomes, and it is reasonable to demand high-quality strategy decisions. It is unreasonable and unfair, though, to say that our strategy is wholly responsible for our outcomes. (See also “Who Did Best?“)

In this case, the company learned a great deal about what outcomes to expect depending on the strategy it chose and the strategies its competitors chose.

Competing against humans

The second lesson is that we compete against humans, and they want to win too. I know that lesson sounds obvious too. But based on the way companies often develop performance targets, we behave as though we are competing against trend lines or financial statements, neither of which fight back.

What the company did right

The third lesson is what this company did right. I would like to say that what they did right was calling me in to help them with the project, but that was merely a side-effect of what they did right. What they did right was they decided to solve the problem, rather than settling, negotiating, or citing magic numbers.

The outcome was not only to resolve the classic conflict of top-management stretch goals versus product-management realism. It was also to preclude the equally classic conflict that comes later, the one about underperforming versus overexpecting.

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