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Slides from an AMG Executive Briefing that examines the impact of a poor sales hiring process
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Hiring Salespeople and the Economics of Failure
An AMG Executive Briefing
The Economicsof Failure
Sizing up the overall problem
The Economicsof Failure
Sizing up the overall problem
Identifying existing and potential problems
The Economicsof Failure
Sizing up the overall problem
Identifying existing and potential problems
Reversing bad hiring processes and implementing good ones
The Economicsof Failure
One-to-many: A “purposeful primer”
The Economicsof Failure
One-to-many: A “purposeful primer”
Many-to-many: Stay posted online, join in the conversation
The Economicsof Failure
One-to-many: A “purposeful primer”
Many-to-many: Stay posted online
One-to-one: Follow-up, follow-through and making sense of it all…
Many-to-many: Stay posted online, join in the conversation
Bad Recruiting Practices: Sizing up the problem
Systematically winging it
Bad Recruiting Practices: Sizing up the problem
Failing to benchmark
Bad Recruiting Practices: Sizing up the problem
Not hiring to profile
Bad Recruiting Practices: Sizing up the problem
Wrong time, wrong place
Bad Recruiting Practices: Sizing up the problem
Recruiting bad apples
Bad Recruiting Practices: Sizing up the problem
Getting to grips with costs
Bad Recruiting Practices: Sizing up the problem
The cost of acquisition
Bad Recruiting Practices: Sizing up the problem
The cost of turnover
Bad Recruiting Practices: Sizing up the problem
Cost of mediocre performance
Bad Recruiting Practices: Sizing up the problem
Hidden costs
Bad Recruiting Practices: Sizing up the problem
What’s acceptable to you?
Bad Recruiting Practices: Sizing up the problem
Method one:Number crunching
Bad Recruiting Practices: Sizing up the problem
Method two: Utility analysis
Bad Recruiting Practices: Sizing up the problem
METHOD ONE: Number Crunching
Did you find and download the spreadsheet:
Calculating The Cost of Bad Hires?
RECRUITMENT and DEVELOPMENT
COSTS
The numberof salespeople
hired in the last12-months?
RECRUITMENT and DEVELOPMENT
COSTS
The numberof salespeople
hired in the last12-months?
18
RECRUITMENT and DEVELOPMENT
COSTS
The number of salespeople fired
or who quit in the last 12-months?
RECRUITMENT and DEVELOPMENT
COSTS
The number of salespeople fired
or who quit in the last 12-months?
06
RECRUITMENT and DEVELOPMENT
COSTS
The numberof candidates
interviewed for each position?
RECRUITMENT and DEVELOPMENT
COSTS
The numberof candidates
interviewed for each position?
03
RECRUITMENT and DEVELOPMENT
COSTS
Approximate number of hours
interviewing each candidate?
RECRUITMENT and DEVELOPMENT
COSTS
02
Approximate number of hours
interviewing each candidate?
RECRUITMENT and DEVELOPMENT
COSTS
The numberof times each
candidate was interviewed?
RECRUITMENT and DEVELOPMENT
COSTS
03
The numberof times each
candidate was interviewed?
RECRUITMENT and DEVELOPMENT
COSTS
How many hours invested coaching
each person?
RECRUITMENT and DEVELOPMENT
COSTS
40
How many hours invested coaching
each person?
RECRUITMENT and DEVELOPMENT
COSTS
Any fee paid for each position?
RECRUITMENT and DEVELOPMENT
COSTS
$12,500.00
Any fee paid for each position?
RECRUITMENT and DEVELOPMENT
COSTS
Cost of advertisingeach position?
RECRUITMENT and DEVELOPMENT
COSTS
$0.00
Cost of advertisingeach position?
RECRUITMENT and DEVELOPMENT
COSTS
The value of an hour of your time?
RECRUITMENT and DEVELOPMENT
COSTS
$85.00
The value of an hour of your time?
RECRUITMENT and DEVELOPMENT
COSTS
Fees paid for training each salesperson?
RECRUITMENT and DEVELOPMENT
COSTS
$2,700.00
Fees paid for training each salesperson?
RECRUITMENT and DEVELOPMENT
COSTS
Average yearly base salary paid to each salesperson?
RECRUITMENT and DEVELOPMENT
COSTS
$85,700.00
Average yearly base salary paid to each salesperson?
RECRUITMENT and DEVELOPMENT
COSTS
Average number of months worked before being fired
or quit?
RECRUITMENT and DEVELOPMENT
COSTS
09
Average number of months worked before being fired
or quit?
PERFORMANCEof KEEPERS
Average annual revenue per sale or customer?
PERFORMANCEof KEEPERS
Average annual revenue per sale or customer?
$26,700.00
PERFORMANCEof KEEPERS
Number of sales or customers per month?
PERFORMANCEof KEEPERS
Number of sales or customers per month?
04
PERFORMANCEof KEEPERS
What is the gross margin on sales?
PERFORMANCEof KEEPERS
What is the gross margin on sales?
30%
PERFORMANCEof LOSERS
Average annual revenue per sale
or customer?
PERFORMANCEof LOSERS
Average annual revenue per sale
or customer?
$26,700.00
PERFORMANCEof LOSERS
Number of sales or customers per
month?
PERFORMANCEof LOSERS
Number of sales or customers per
month?
01
PERFORMANCEof LOSERS
What is the gross margin on sales?
PERFORMANCEof LOSERS
What is the gross margin on sales?
21%
What if you decreased your sales staff turnover by 30%?
$385,452
Decreased costs…
Flipside…
…Upside
Before After
Turnover % 33% 23%
Flipside…
…Upside
Before After
Turnover % 33% 23%
Cost of recruiting $1,175,040 $822,528
Flipside…
…Upside
Before After
Turnover % 33% 23%
Cost of recruiting $1,175,040 $822,528
Development costs $109,800 $76,860
Flipside…
…Upside
Before After
Turnover % 33% 23%
Cost of recruiting $1,175,040 $822,528
Development costs $109,800 $76,860
The cost of bad hires $1,284,840 $899,388
#DIV/0!
What’s your number?
NO CRYSTAL BALLS
Without accurate data your analysis will produce fuzzy
readings at best.
Where are you getting your
data from?
Can you trust it?
METHOD TWO: Utility Analysis
Using statistics to calculate standard
deviations of performance
A Step-by-Step Approach
1: Rank order, from top tobottom
1: Rank order, from top tobottom
2: Tier production levels
1: Rank order, from top tobottom
2: Tier production levels
3: Assign salespeople totheir appropriate level
1: Rank order, from top tobottom
2: Tier production levels
3: Assign salespeople totheir appropriate level
4: Establish averages foreach production level
1: Rank order, from top tobottom
2: Tier production levels
3: Assign salespeople totheir appropriate level
4: Establish averages foreach production level
5: Analyze and work thenumbers
Rank from top to bottom
Mary $1,000,000
Matt $900,000
Mark $800,000
Luke $700,000
John $600,000
Sarah $500,000
Ester $400,000
David $300,000
Sam $200,000
Martha $100,000
A typical sales team?
Tier production levels
Add production from allsalespeople and divide by three.
This yields three break-points thatallow us to divide our salespeople
into meaningful productionlevels, or “tiers.”
Total sales $5,500,000
Mary $1,000,000
Matt $900,000
Mark $800,000
Luke $700,000
John $600,000
Sarah $500,000
Ester $400,000
David $300,000
Sam $200,000
Martha $100,000
Add production from allsalespeople and divide by three.
This yields three break-points thatallow us to divide our salespeople
into meaningful productionlevels, or “tiers.”
Total sales of $5,500,000 dividedby 3 equals approximately
$1,800,000 per sales tier.
Assign salespeople to their appropriate level
Mary $1,000,000
Matt $900,000
Top-tier $1,900,000
Mary $1,000,000
Matt $900,000
Top-tier $1,900,00
Mark $800,000
Luke $700,000
John $600,000
Mid-tier $2,100,000
Mary $1,000,000
Matt $900,000
Top-tier $1,900,000
Mark $800,000
Luke $700,000
John $600,000
Mid-tier $2,100,000
Sarah $500,000
Ester $400,000
David $300,000
Sam $200,000
Martha $100,000
Bottom-tier $1,500,000
Establish averages for each production level
Divide production [within each tier] by the number of people in that level.
This yields the average production per salesperson by tier.
Divide production [within each tier] by the number of people in that level.
This yields the average production per salesperson by tier.
Mary + Matt = $1,900,000 / 2= $950,000 averagetop-tier production
Divide production [within each tier] by the number of people in that level.
This yields the average production per salesperson by tier.
Mark + Luke + John = $2,100,000 / 3= $700,000 averagemid-tier production
Divide production [within each tier] by the number of people in that level.
This yields the average production per salesperson by tier.
Sarah + Ester + David + Sam + Martha = $1,500,000 / 5 =
$300,000 averagebottom-tier production
Analyze and workthe numbers
Calculate the average production difference between a mid-tier salesperson and a bottom-tier
salesperson.
Calculate the average production difference between a mid-tier salesperson and a bottom-tier
salesperson.
Using a mid-tier sales “target” provides a conservative estimate of lost
production.
Calculate the average production difference between a mid-tier salesperson and a bottom-tier
salesperson.
Using a mid-tier sales “target” provides a conservative estimate of lost
production.
$700,000 average mid-tier –$300,000 average bottom-tier
= $400,000 average production lost per bottom-tier salesperson.
Multiply this figure by the number of salespeople in the bottom tier.
This represents the total sales lost each year by the bottom-tier salespeople.
Multiply this figure by the number of salespeople in the bottom tier.
This represents the total sales lost each year by the bottom-tier salespeople.
$400,000 x 5 =
$2,000,000/year
Most people don’t realize recruiting costs
are more than thecost of acquisition or
cost of turnover; they are also deeply hidden in the cost of variable
productivity.
From the largest organization to the
smallest, bad hiring practices tend to
secretly cripple organizations.
Most people don’t realize recruiting costs
are more than thecost of acquisition or
cost of turnover; they are also deeply hidden in the cost of variable
productivity.
From the largest organization to the
smallest, bad hiring practices tend to
secretly cripple organizations.
More Number Crunching
Does anyone know what the
actual cost of making a bad hire
really is, huh?
Who is measuring what, exactly?
More Number Crunching
Does anyone know what the
actual cost of making a bad hire
really is, huh?
Who is measuring what, exactly?
Calculating hidden costs
Administrative costs:Discipline and termination
Separation processing
Vacancy costs:Open territories
Unsold inventory
Administrative costs:Discipline and termination
Separation processing
Vacancy costs:Open territories
Unsold inventory
Administrative costs:Discipline and termination
Separation processing
Replacement costs:Recruiting and related
Management time
Vacancy costs:Open territories
Unsold inventory
Administrative costs:Discipline and termination
Separation processing
Management time:Hand-holdingLess time for
sales management
Replacement costs:Recruiting and related
Management time
Vacancy costs:Open territories
Unsold inventory
Administrative costs:Discipline and termination
Separation processing
Management time:Hand-holdingLess time for
sales management
Team Morale:Lower achievements
ResentmentAnxiety
Replacement costs:Recruiting and related
Management time
Vacancy costs:Open territories
Unsold inventory
Administrative costs:Discipline and termination
Separation processing
Training costs:Onboarding
Time to ramp-up
Management time:Hand-holdingLess time for
sales management
Team Morale:Lower achievements
ResentmentAnxiety
Replacement costs:Recruiting and related
Management time
Lost opportunity:Missed dealsLost business Vacancy costs:
Open territoriesUnsold inventory
Administrative costs:Discipline and termination
Separation processing
Management time:Hand-holdingLess time for
sales management
Training costs:Onboarding
Time to ramp-up
Team Morale:Lower achievements
ResentmentAnxiety
Replacement costs:Recruiting and related
Management time
Lost opportunity:Missed dealsLost business Vacancy costs:
Open territoriesUnsold inventory
Administrative costs:Discipline and termination
Separation processing
Training costs:Onboarding
Time to ramp-up
Customer costs:Complaints and poor service
Lost referral businessBrand erosion
Management time:Hand-holdingLess time for
sales management
Team Morale:Lower achievements
ResentmentAnxiety
Replacement costs:Recruiting and related
Management time
Lost opportunity:Missed dealsLost business Vacancy costs:
Open territoriesUnsold inventory
Administrative costs:Discipline and termination
Separation processing
Training costs:Onboarding
Time to ramp-up
Competitive advantage:Lower ROI per salesperson
Lower margin on salesProprietary stuff
Management time:Hand-holdingLess time for
sales management
Team Morale:Lower achievements
ResentmentAnxiety
Customer costs:Complaints and poor service
Lost referral businessBrand erosion
Replacement costs:Recruiting and related
Management time
Identifying existing and potential problems
Top-down and bottom-up
Identifying existing and potential problems
Questions of perspective
Identifying existing and potential problems
Organizational dynamics
Identifying existing and potential problems
Managing crunches, crisesand complexities
Identifying existing and potential problems
Talent management
Identifying existing and potential problems
Process improvement
Identifying existing and potential problems
Benchmarking, audits and assessments
Identifying existing and potential problems
Sizing up the organization
1: Understanding thedynamics of change
1: Understanding thedynamics of change
2: Flat world attitudes
1: Understanding thedynamics of change
2: Flat world attitudes
3: Establishing a newmodel
1: Understanding thedynamics of change
2: Flat world attitudes
3: Establishing a newmodel
4: Aligning the salesorganization with goals
1: Understanding thedynamics of change
2: Flat world attitudes
3: Establishing a newmodel
4: Aligning the salesorganization with goals
5: Separating the hereticsfrom the faithful
ARE YOU ATALENT-CENTRIC ORGANIZATION?
What is “talent?”
ARE YOU ATALENT-CENTRIC ORGANIZATION?
Look at the recruiting process:
Look at the recruiting process:
What works?
ARE YOU ATALENT-CENTRIC ORGANIZATION?
Look at the recruiting process:
What works?
What doesn’t work?
ARE YOU ATALENT-CENTRIC ORGANIZATION?
Look at the recruiting process:
What works?
What doesn’t work?
ARE YOU ATALENT-CENTRIC ORGANIZATION?
Developing a working model and systematic
approach…
ARE YOU ATALENT-CENTRIC ORGANIZATION?
Developing a working model and systematic
approach…
Workforce planning
ARE YOU ATALENT-CENTRIC ORGANIZATION?
Developing a working model and systematic
approach…
Profiling
ARE YOU ATALENT-CENTRIC ORGANIZATION?
Developing a working model and systematic
approach…
Employment branding
ARE YOU ATALENT-CENTRIC ORGANIZATION?
Developing a working model and systematic
approach…
Sourcing strategies
ARE YOU ATALENT-CENTRIC ORGANIZATION?
Developing a working model and systematic
approach…
Screening and assessment
ARE YOU ATALENT-CENTRIC ORGANIZATION?
Developing a working model and systematic
approach…
Selection
ARE YOU ATALENT-CENTRIC ORGANIZATION?
Developing a working model and systematic
approach…
Onboarding
ARE YOU ATALENT-CENTRIC ORGANIZATION?
Developing a working model and systematic
approach…
Engagement
ARE YOU ATALENT-CENTRIC ORGANIZATION?
Developing a working model and systematic
approach…
Performance management
ARE YOU ATALENT-CENTRIC ORGANIZATION?
Developing a working model and systematic
approach…
Training and development
ARE YOU ATALENT-CENTRIC ORGANIZATION?
Developing a working model and systematic
approach…
Retention
ARE YOU ATALENT-CENTRIC ORGANIZATION?
Developing a working model and systematic
approach…
Succession planning
ARE YOU ATALENT-CENTRIC ORGANIZATION?
Assessing who’s who and who’s up for change
WALKING THE WALK
TALK
ING
TH
E TA
LK
WALKING THE WALK
TALK
ING
TH
E TA
LK
The Unfaithful
WALKING THE WALK
TALK
ING
TH
E TA
LK
The Unfaithful
Heretics
WALKING THE WALK
TALK
ING
TH
E TA
LK
The Unfaithful
Heretics
Good Soldiers
WALKING THE WALK
TALK
ING
TH
E TA
LK
The Unfaithful
Heretics
Good Soldiers
Champions
WHO ISYOUR BEST
RECRUITER?
Fill in the blank…
WHO ISYOUR BEST
RECRUITER?
Fill in the blank…
Unfaithful?
WHO ISYOUR BEST
RECRUITER?
Fill in the blank…
A heretic?
WHO ISYOUR BEST
RECRUITER?
Fill in the blank…
Good soldier?
WHO ISYOUR BEST
RECRUITER?
Fill in the blank…
A champion?
A sales manager’s role
[Why recruiting is a stretch]
Grunt work
Bad economics
Core competencies
Unbundle it
Strategic versus tactical
Are your sales managersup to the job?
1. A systematic,integrated androutine approach?
1. A systematic,integrated androutine approach?
2. Growing the salesteam, raisingthe bar?
1. A systematic,integrated androutine approach?
2. Growing the salesteam, raisingthe bar?
3. Part of the talentmanagementcontinuum?
Standard deviations…
…digging deeper
…digging deeper
Uncovering underlying problems…
…digging deeper
Uncovering underlying problems…
Why do underperformers underperform?
…digging deeper
Uncovering underlying problems…
Why do underperformers underperform?
Is it a motivation problem?
…digging deeper
Uncovering underlying problems…
Why do underperformers underperform?
Is it a motivation problem?
Are core behaviors, attitudes and techniques out of synch?
…digging deeper
Uncovering underlying problems…
Why do underperformers underperform?
Is it a motivation problem?
Are core behaviors, attitudes and techniques out of synch?
Are the problems situational?
Rooting out problems
Investigate
Investigate
Competencies
Investigate
Competencies
Measurable, observable
Investigate
Competencies
Measurable, observable
Relate to job performance
Measuring applicants
Measuring applicants
Tests and simulations
Measuring applicants
Tests and simulations
Behavioral interviewing
Measuring applicants
Tests and simulations
Behavioral interviewing
Targeted Selection
Reversing bad hiring processes and implementing good ones
Chunking the problem
Reversing bad hiring processes and implementing good ones
Jumping the tracks
Reversing bad hiring processes and implementing good ones
Start with the end in mind
Reversing bad hiring processes and implementing good ones
What next?
Reversing bad hiring processes and implementing good ones
CALCULATING THE COST OF HIRING MISTAKES
If time is money, the typical interview is a waste of both…
CALCULATING THE COST OF HIRING MISTAKES
If time is money, the typical interview is a waste of both…
Poor predictor of performance
CALCULATING THE COST OF HIRING MISTAKES
If time is money, the typical interview is a waste of both…
Who is selling who what?
CALCULATING THE COST OF HIRING MISTAKES
If time is money, the typical interview is a waste of both…
What gets measured and how?
CALCULATING THE COST OF HIRING
MISTAKES
Using top producers as a model misses
the mark…
CALCULATING THE COST OF HIRING
MISTAKES
Using top producers as a model misses
the mark…
Measuring the difference
CALCULATING THE COST OF HIRING
MISTAKES
Using top producers as a model misses
the mark…
True or False:All salespeople
have big heads?
CALCULATING THE COST OF HIRING MISTAKES
Measuring the wrong stuff…
CALCULATING THE COST OF HIRING MISTAKES
Measuring the wrong stuff…
Personality
CALCULATING THE COST OF HIRING MISTAKES
Measuring the wrong stuff…
Aptitude
CALCULATING THE COST OF HIRING MISTAKES
Measuring the wrong stuff…
Experience
CALCULATING THE COST OF HIRING MISTAKES
Measuring the wrong stuff…
Validated skills-based and job related testing
CALCULATING THE COST OF HIRING
MISTAKES
Getting usedto it…
CALCULATING THE COST OF HIRING
MISTAKES
Getting usedto it…
Analyzing poor performance
CALCULATING THE COST OF HIRING
MISTAKES
Getting usedto it…
Retention problems
CALCULATING THE COST OF HIRING
MISTAKES
Getting usedto it…
Understanding why people leave
Baselines and benchmarks
Profiling
Job profiling
Profiling
Job profiling
Candidate profiling
Profiling
Job profiling
Candidate profiling
Performance profiling
Profiling
Job profiling
Candidate profiling
Performance profiling
Fit
Assessments
Talent management audits
Assessments
Talent management audits
Sales management evaluation
Assessments
Talent management audits
Sales management evaluation
Statistically validated screening
Assessments
Talent management audits
Sales management evaluation
Statistically validated screening
Sales- and job-specific assessments
Performance Management
Accelerate ramp-up
Performance Management
Accelerate ramp-up
Minimize deviations
Performance Management
Accelerate ramp-up
Minimize deviations
Effective management
Performance Management
Accelerate ramp-up
Minimize deviations
Effective management
Growing the organization
What next?
1: Get real about the costsand consequences
1: Get real about the costsand consequences
2: Step back and evaluateyour options
1: Get real about the costsand consequences
2: Step back and evaluateyour options
3: Take a leadership roleand get involved
1: Get real about the costsand consequences
2: Step back and evaluateyour options
3: Take a leadership roleand get involved
4: Systematically applybest practices
1: Get real about the costsand consequences
2: Step back and evaluateyour options
3: Take a leadership roleand get involved
4: Systematically applybest practices
5: Repeat