Effectiveness: Break Down the Silos
Organizations cannot be effective operating in strong functional silos.
Strong silos that are not aligned prohibit companies from developing an effective market response. And alignment has never been more critical in an age when sales channels and marketing tactics are more numerous and complex than ever before. What’s more, aligned organizations deliver better customer service at a lower cost — yet alignment is still elusive for most companies.
There are a number of reasons. And it starts with conflicting performance incentives. The sales department is focused on volume and effectiveness, while marketing is incentivized on market share. Meanwhile, the supply chain organization is focused on cost mitigation. Only 50% of trade activities are evaluated, and most organizations that do so lack a consistent set of metrics for judging effectiveness.
As a result, the functions are not able to effectively execute on go-to-market tactics like price, “buy one, get one free” or new product launches. The traditional focus on improving functional excellence creates tension at a time when the increased complexity of marketing tactics demands alignment. With a shift toward greater personalization and item configuration, it’s tougher for functions to work together.
Issue 1: Conflicting Roles for Trade
Another reason is the way trade tactics are managed. As shown in Figure 3, many companies exhibit an alignment gap between the commercial teams of sales and marketing, sales and operations, and also between the information technology team and the marketing and finance teams.
The first generation of trade promotion management addressed control: checkbook functionality to track expenditures. Emerging functionality enables the translation of demand insights into prescriptive analytics to sense and respond market demand. Although companies want to grow, they can’t maximize the effectiveness of such newer technologies without aligning their metrics.
The role of trade promotion is different for each function. The goal for sales is growing volume. For finance, it’s spend effectiveness. For marketing, it’s growing market share, and for the supply chain, it’s customer service. Given all that, it’s hard for an organization to agree on a definition for “trade promotion effectiveness.”
The first step is closing the gaps between the functions, and defining over-arching metrics on trade effectiveness across functions. The change management issues are greater than those associated with technology implementation.
Issue 2: Outdated Forecasting Practices
The tactics used to stimulate volume and improve spend effectiveness are varied: new product launch, price management, slotting/shelf allowances and special programs, to name a few. They are growing more complex. And each tactic increases forecast error and bias.
As noted in Figure 4, the most common go-to-market tactics are often the least effective. Forecasting trade lift is becoming increasingly complex and requires greater focus and skill levels. The forecasting techniques of the 1990s aren’t adequate. But the responsibility for improving forecasting is a hot potato between functions and, although it’s commonly cited as an issue at organizations, the leadership needed to improve forecasting is a scarce commodity because too few understand the issues that are involved.
Issue 3. Demand Management Conflicts
Another issue is the isolation of processes within sales account teams. Within an organization, there are many forms of demand management, and most of them are not connected.
The average company has more than 50% of its volume moving through vendor managed inventory (VMI), and the account teams typically employ forecasting technologies and processes that aren’t coupled to enterprise systems. Most teams are self-serving, operating in isolation.
And given that the average company has more than 25 account teams, there are many disconnected and often ineffective forecasting processes. This is one of the key issues driving misalignment between sales teams and back-office operations.
Among the effectiveness gaps shown in Figure 4, forecasting stands out like a sore thumb. It’s used often, but it’s not effective. The complexity of sales tactics ups the ante. And while technologies have matured and evolved, few are actively fixing these issues.
And the most critical issue of them all is alignment.
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TABLE OF CONTENTS:
- Editor's Note: Trading Places
- State of the Industry: Building Outside-in Processes
- Trade Promotion Effectiveness: Break Down the Silos
- Sponsored: Bringing Clarity Back into the Picture
- Industry Relations: Bridging the Divide Between Vendor-User Perspectives
- State of Transformation: Making the Pivot to Digital
- Sponsored: Transforming — and Re-Transforming — Sales in a Technology-Enabled World