By Rick McPartlin
Alignment (Revenue Strategy + Execution) x (Leverage x Structure)
The next variable in the Revenue Generation formula is Execution. Execution is where most companies focus to try to generate revenue. Why? If the right sales and marketing people are hired and they “get it” and work hard enough, we know the product will sell itself, so success will follow.
Based on traditional thinking, it’s also clear that if the goal is more sales (revenue), then a solution is to pour more money into execution, and sales will go up. This thinking ignores these facts:
- Salespeople are VERY expensive;
- Most salespeople don’t make quota;
- Salespersons often have a long onboarding (to learn the process and the product);
- Building a pipeline takes time;
- The length of the sales cycle; and
- We don’t know which salespeople will make their quota.
Now imagine that, due to lack of strategy or poor alignment, the execution function is not aligned to a Revenue Strategy. We know:
- The buyer will never pay the Maximum Margin; and
- Each salesperson is doing whatever he or she thinks is right at the moment, resulting in
- low levels of repeatability,
- low levels of predictably,
- low margin, and
- high cost of execution.
So create the revenue strategy first, so revenue execution can be focused on the strategy. As the CEO, you’re the one investing resources in execution. And when execution is random and chaotic, the return on the investment is at best POOR, and survival is always questionable.
Let’s examine the formula with the first two variables the CEO invests in.
Revenue Strategy + Execution
Variable 2: Execution
Execution is what separates survival and success from frustration and failure. Great execution is a variable that leaders believe they have control over. Leaders do have some control over:
- how their teams engage,
- how many hours are worked,
- the level of training,
- who is hired, and
- the words that are spoken.
As important as the ability to execute is, remember: Either what is being executed is spelled out in the revenue strategy, or the chaos is being enabled by the lack of a strategy.
The combination of the first two variables will look like this:
(Revenue Strategy + Execution)
It is the combination of revenue strategy and execution that creates profitable results in the market. The better these two are, the greater the revenue result and the return on resources invested will be. The strategy defines the Maximum Margin, and execution takes it to the market.If one is strong, the other gets stronger, and if one is weak, the other is weakened. That is why they are enclosed in the formula together and multiplied by the degree of alignment.
Alignment (Revenue Strategy + Execution)
Alignment is not something you buy or hire. Alignment is something over time you manage into your company culture. The alignment of a company culture between strategy and execution explains the difference between two computer manufacturing companies by the name of Dell and Apple. Dell is aligned around operational excellence and a customer engagement model. Apple is aligned on breaking the rules for applying technology, and partnering with their user community to do cool stuff.
Both are aligned, and both execute well. The difference is in the value established in their revenue strategies. One is a clear winner.
Variable 3: Alignment
The alignment variable is always between zero and one, with one being perfect alignment. So if the revenue strategy is great, and the execution is great, and they are aligned with each other, the result is the largest possible return for the revenue resources invested. Whatever the value the strategy offers plus the results from a perfectly aligned execution process will define the maximum return on investment (think Apple vs. Dell).
When strategy and execution are not fully aligned, then the alignment variable is less than one, and when you multiply the alignment variable times the total possible return from strategy and execution, the actual return is decreased by the same percent that alignment is less than zero.
Lack of alignment is one of the major causes for the Cost of Chaos, so the CEO’s role is to lead the organization to aligned execution based on the revenue strategy.
The fourth variable is Structure. Execution is the most expensive part of producing revenue for most companies as well as the hardest part to get right, control and grow. Structure is a way to manage the execution based on concepts like process, tools, metrics, and repeatability, along with other factors. All other parts of the business develop structure to manage and improve execution — the revenue process does it today, but since it isn’t done as part of a disciplined formula, it is random with unpredictable results. We all know about CRMs that didn’t work and actually made things worse, or sales training that trained salespeople to do things that didn’t help or actually hurt, or software that only makes money for the vendor.
When structure in applied as part of the formula, the result is very different.
Find out about the final variables and how to avoid the “Cost of Chaos” in Part 3.
Rick McPartlin is the CEO of The Revenue Game and is a revenue generation consultant and Vistage speaker. McPartlin was a Vistage member development chair from 2002 to 2009.
Originally published: Feb 6, 2012