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The company sold machines averaging $1M per unit and was the premium quality supplier in its industry, with a recognized brand name, and always priced between 15 to 30% above all other suppliers. The US subsidiary was responsible for sales, light manufacturing and final assembly, and was was the national service provider for training and maintenance.
The US CFO had ambitious plans to invest in improving their operating systems and technology. It would wipe out all earnings for a year with the promise of increasing earnings in future years. Before moving forward, we were retained by the CFO, with support from the US CEO, to find out “what the hell is going on” before any investments were made. We were given free rein to examine every nook and cranny affecting their performance, and began a deep dive into every moving piece of the US subsidiary’s operation.
We found a corporate culture obsessed with “best in class” quality and exceptional customer service. Senior management reinforced this culture at every turn, and it was echoed at all company levels. Their “on time” delivery was an admirable 92%, and cash flow was reasonable enough to manage continuing operations. Their technology platform was outdated, understandably drawing the attention of the CFO who wanted to invest in IT, yet we found their systems serviceable for the time being. We concluded, the issue was not with the company’s “back-end”, which was productive, well managed, largely efficient and even admirable.
Knowing that revenues had been flat for 3 straight years, we turned our attention to sales & marketing and systematically asked and answered questions to understand the root cause behind the company’s lackluster performance:
After months of digging, we uncovered their root problem was quite simple: the parent company exerted 100% control of all sales activity in the US market. Through transfer pricing and approval of all sales quotes, they fully controlled gross margin. Further, the parent controlled where they prospected, required onerous opportunity update practices, and had poorly trained and equipped sales to answer common prospect questions such as, “why are you priced so high”? Admittedly, we were dumbfounded that the US sales force relied on the company’s brand and reputation for quality in order to justify their product’s premium pricing and further they could not “prove the economic value” of a $1M capital equipment expenditure.
After months of digging, we uncovered their root problem was quite simple: the parent company exerted 100% control of all sales activity in the US market and stemming from this, the US sales force relied on the company’s brand and reputation for quality in order to justify their product’s premium pricing.
We recommended two solutions:
To our delight, our presentation of findings and recommendations was met with ponderous silence and then an actual standing ovation!
Within just one week we designed a spreadsheet-based calculator, for use by all customer and prospect-facing staff, to demonstrate how their higher-quality machinery produced accounting and manufacturing benefits would accrue to deliver greater long-term value to the customer when compared to the company’s lower-priced competitors.
Upon completing a 3-day training session on how to use this new weapon, including drills and tests on the last day, morale was sky high, with comments like: “I can’t believe how I sold anything before seeing this“ and “How can I possibly lose a sale with all this “stuff”?
Next, we armed the CEO with hard information and facts about the state of affairs in the US sales department, for his presentation to the parent company’s President. The two most damning facts were:
A year after training customer-facing staff to demonstrate the value of their offering and guide the US CEO to reclaim control over pricing and closing, we measured the following results:
Revenue growth forecasted
in the next fiscal year