and were weathering the storm better than Adobe, despite its high levels of customer satisfaction. The transition to the cloud seemed to be the right next step.
It was a tough transition and not everyone was initially convinced that the risk was worth taking. “We spent hours knee-deep in Excel spreadsheets modeling this out. We literally covered the boardroom with pricing and unit models, and predictions for how quickly perpetual licenses would fall off and how quickly online subscriptions would ramp up,” explains CFO Mark Garrett.
Having decided to act, the company prepared investors for a drop in revenue and earnings in 2012, and shifted analysts’ focus to the new metrics of the cloud business. As the switchover progressed, investors began asking about longer-term objectives, so Adobe projected the compound annual growth rate and earnings per share three years out. This longer-term outlook was a new concept for a company that had previously only given guidance one year out.
Such a radical change of model required major investment across the company, not least in sales planning. On the product side alone, uptime, availability, disaster recovery, and security all became critical product components that had to be developed. The sales force and channel had to be compensated differently, and even the accounting organization had to change as it moved from billing three million customers a year to four million a month.
Adobe’s vice president of business operations and strategy, Dan Cohen, recognizes the benefits of change. “Companies that simply stick to what has made them successful in the past leave themselves open to disruption. You have to take a fresh look at your products – and be willing to ‘burn the boats.’ Executives in every industry need to read the tea leaves and look at changes that are happening in their own or adjacent industries. Don’t wait until someone is disrupting your business to make any kind of necessary transformation. It will already be too late. It can be hard to catch up to others that have gotten the jump. It can feel risky to make this type of move, but once you recognize that the market will go in the new direction with or without you, there’s really no other choice.”3
Make It a Way of Life
Such success stories are of little relevance if they are just a stroke of luck and can’t be replicated. From what we learned in our interviews, they are not. Sales executives make their own luck by developing the ability to peek around corners and consistently identify sales opportunities that may not materialize for 12 or 18 months – or longer.
How do these managers decide when to pounce on a tactical opportunity or commit in advance to investments in a market that will pay off years from now? The leaders we interviewed do not simply gamble on market movements; they have institutionalized a forward-looking approach. They do their homework and have a fact-based rationale for new initiatives and investments. And they have built a track record of success that gives them credibility in their organizations.
There are many ways of generating this forward-looking view of the market, such as investing in the analysis of new trends and potential winning concepts, and encouraging customers to commit to new trends. Both require the right mind-set and a willingness to commit resources.
Leaders do not simply gamble on market movements – they institutionalize a forward-looking approach.
A contract manufacturing company that builds products for IT equipment makers has had great success with a dedicated trends-analysis function. It deploys a team of speculative market analysts whose job is to predict which hardware products will have meaningful volume in the next two to three years – and which potential client companies are likely to develop such products. That gives the company a perspective on its target customers a couple of years before they become large.
The contract manufacturer uses several strategies to build these insights, including spending time with the venture-capital firms that fund new companies. It adheres to the simple strategy of following the money. It is a safe bet that a good proportion of the companies that receive significant rather than speculative investments from the venture-capital firms will end up as exactly the fast-growing companies the manufacturer is interested in.
The manufacturer also speaks to customers about which emerging products and technologies it is pursuing, and it continuously evaluates the supply chains of its customers (and of its customers’ customers) for emerging sales targets. One of the outputs of this analysis is a list of small but fast-growing companies that may evolve into major users of contract-manufacturing capacity. The manufacturer then invests in building relationships with these companies to convert them into customers. The investment is essentially a subsidy – taking on a customer whose initial volume is too low to be economically attractive. Some of these emerging companies will never grow into marquee customers. A few, however, will become major players, and the manufacturer will have locked in a profitable order stream. In less than two years, this group was consistently able to deliver a 15 percent return on investment (ROI) by identifying new opportunities the company would otherwise have been unlikely to get.
As we mentioned at the start of the chapter, one high-tech company has created a high-powered solutions unit that is dedicated to preparing major customers to commit early to new trends. The team is staffed with a mix of former consultants, professors, and respected industry leaders from high-potential market segments. Its task is to find ways to accelerate demand by influencing important decision makers to be early adopters.
The ultimate goal is to help the company get customers to commit to investing in the next evolution of technology ahead of its competitors. So the group spends its time producing thought-provoking industry perspectives, quantifying the benefits of its offering for individual companies, and building relationships with influential company executives and government officials. The most compelling ideas can reduce adoption time for new technology and accelerate uptake in an entire customer segment or country. The company then benefits disproportionately, given that it already has a strong market position.
Building and sustaining the capability to take a forward-looking view of the market is not easy. As we looked across all of these great sellers, two common characteristics emerged: the mind-set of sales leadership and resource commitment. Sales leaders must consistently monitor the macro-environment in search of sales opportunities. Even good sales leaders find this challenging, given the relentless pressure to hit near-term targets. This is why resource commitment is important.
In other words, forward planning must be part of someone’s job description, not just part of top management’s lengthy to-do list. Sometimes, it falls within marketing but, in many cases, it is sales’ responsibility. The level of investment will vary depending on the company and its context. At the high end, we see formal operations such as the market-shaping team at the IT supplier. At the other end, forward-looking analysis is embedded into annual capacity planning. The most common arrangement is a small, centralized sales team whose responsibility is to scan opportunities and convert those it finds into tangible sales leads. Many companies that we see investing real resources ahead of demand are equally rigorous in taking costs out of sales. A conscious eye on where resources are no longer important creates the capacity to invest.
Forward planning must be part of someone’s job description.
Thinking three moves ahead is vital in any game and essential to sales growth. It does not come automatically, however. Companies have to follow the lead of the high-tech player we mentioned at the top, which spotted the multimillion-dollar opportunity of a big trend. They need to learn the lesson of the automaker and build their sales resources on the ground well ahead of time in order to end up among the market leaders. And like the manufacturer that analyzed its potential customers, they need to embed the concept of looking forward into the sales organization’s mind-set to guarantee that impressive 15 percent rate of return. EMC’s William J. Teuber, Jr. has certainly embraced these ideas, as has Karim Amin, from Siemens Power &
Based on interview with Mark Garrett and Dan Cohen that appeared in “Reborn in the cloud,” McKinsey Insights, July 2015.
