By Dean Emmerton, Homayoun Hatami, Mitra Mahdavian and Maria Valdivieso
All sales leaders know they should pay attention to what is happening in the wider world to anticipate changes that could turn into opportunities or threats. But few put their money where their mouth is.
The best sales organizations, however, make trend analysis a formal part of the sales planning process. As a result, are perfectly poised to capture the opportunities created by sudden changes in the environment. They have to invest ahead of demand. Based on our research and discussions with the 200 sales executives we interviewed, it is clear that this is a critical component for great companies who capture the benefits of forward thinking.
One leading high-tech company’s sales leadership, for example, continuously monitors economics, consumer behavior, and other forces to identify two or three relevant trends each year, and then translates them into concrete sales programs. It develops cross-functional SWAT teams that work with customer account teams to educate customers on the nature of a trend and to sell them on its solution.
Sales leaders in particular do two things well when it comes to getting ahead of future opportunities:
1. Create capacity before demand.
Many sales executives explicitly account for investment in new growth opportunities in their annual capacity planning processes. This usually involves simply drawing territories and assigning customer lists to support growth initiatives but it can also include requests for dedicated resources to pursue new sources of long-term demand, particularly in emerging markets. In a survey of more than 1,000 companies, 51% of the fastest growing companies conduct sales planning that goes beyond one year, and the level of investment can be high.
Anticipating trends and thinking at least ten quarters ahead can take companies well outside their comfort zone.
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.’"*
There were bumps in the road, but Adobe’s stock price has more than tripled, overall revenue growth has climbed from single digits five years ago to double digits today, and recurring revenue has risen from 19% in 2011 to more than 70% of total revenue today.
2. Move from one-off successes to sustained returns.
Such success stories are of little relevance if they are just a stroke of luck and can’t be replicated. Winning 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? They do not simply gamble on market movements; they have institutionalized a forward-looking approach.
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. 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.
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 manufacturer uses several strategies to build these insights, including spending time with the venture-capital firms that fund new companies. 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. In less than two years, this group was consistently able to deliver a 15% return on investment (ROI) by identifying new opportunities the company would otherwise have been unlikely to get.
Building and sustaining the capability to take a forward-looking view of the market requires the right sales leadership mind-set and resource commitment. Even good sales leaders find it challenging to look ahead given the relentless pressure to hit near-term targets. At its most basic, forward planning must be part of someone’s job description—not just part of top management’s lengthy to-do list.
Dean Emmerton is an associate partner in McKinsey's Marketing & Sales Practice.
Homayoun Hatami leads the Marketing & Sales Practice in EMEA for McKinsey.
Mitra Mahdavian is an associate partner in McKinsey's Marketing & Sales Practice.
Maria Valdivieso is director of knowledge for McKinsey's Marketing & Sales Practice.
*Based on interview with Mark Garrett and Dan Cohen that appeared in “Reborn in the cloud,” McKinsey Insights, July 2015
