Sales, Procurement and the Productivity Puzzle
Most of us are aware of the Government and Bank of England’s preoccupation with the Productivity Puzzle.
Productivity growth helps UK PLC to be more competitive and means wages can go up without increasing costs to consumers. Unfortunately, UK productivity lags some 16% where it should be versus pre 2007 financial crisis performance1. Economists are struggling to explain this “exceptional weakness” given relatively benign market conditions – hence the puzzle.
Whilst conventional economic hypotheses point to lower levels of capital investment post-crash or unwillingness of firms to lay off workers or even the survival of “zombie” businesses (who would normally have folded if not for low interest rates keeping them alive), it is interesting to read the small print of BoE reports, which indicate some sales clues to this.
Businesses are having to work harder to drive sales (or “Thin market externalities” in BoE speak). A large part of the fall in productivity has been in business services, where evidence suggests it is taking longer and becoming more labour intensive to drive the same sales value. Equally, the BoE evidence suggests that whilst spend on innovation has sustained, lower levels of innovation have actually been implemented than before 2007.
One area not registered by the Bank, but potentially allied to constrained productivity is the rise of “strong procurement”. Driven by benefits of lowering cost as well as the ever-tightening grip of corporate governance post GFC, we see three effects of this on revenues - especially in B2B businesses:
1. Less incentive to innovate. Tough customer contracting processes – crucially led by procurement rather than operators – sees innovation factored out to achieve lowest price often at the expense of better value over time;
2. Challenges in holding or advancing price – with only 5% of businesses able to articulate clear value propositions KAMs are conceding on price in the face of buyer demands;
3. Low conversion rates. Perhaps counter-intuitively, as customers have become more difficult to access, business development time has become more internally-focused. We find many KAMs spending more time on internally-facing tasks (or on social media apparently compared to German peers) than out prospecting or networking with customers.
This means that business leaders have to change existing sales approaches to become much more efficient and ensure customer value is much better defined and deal value much better defended.
The answer to the Productivity Puzzle may well be for the UK to sell better - and so begs the question of leaders “How effective are you at answering your own sales productivity puzzle?”
1 The UK productivity puzzle. Band of England Quarterly Bulletin 2014 Q2 – Monetary Analysis Directorate.Share on LinkedIn