Friday, August 28, 2009

Relational vs. Transactional Selling

It's often noted that ours is a relationship business. Eighty percent of our revenues come from repeat customers. Long-term relationships typically provide our highest profits, lowest business acquisition costs, and most satisfying work.

Why then do we predominantly take a transactional approach to developing new business? We focus on identifying project leads, tracking RFPs, and writing proposals. At the same time, many of us complain that we "don't have time to sell" (i.e., build relationships in advance of the client's procurement process). Somehow it seems more efficient to wait until the fourth quarter to get into the game. Unfortunately, that usually means we're on the losing side.

By contrast, relational selling begins well before the procurement. It emphasizes building trust, uncovering needs, solving problems, creating a win-win partnership. The relationship itself is a key benefit. To be certain, the client's formal procurement process seems to favor a transactional approach. But most clients are still ultimately swayed by relationships.

In a weak economy, the pressure to follow a transactional approach increases. The need is to increase sales, quickly. So naturally we turn our attention to looking for near-term proposal opportunities. Isn't that the quickest way to bring in new work?

Unfortunately not. Writing proposals without investing in the up-front relationship building rarely produces success. Only the illusion that we're being productive. A better expenditure of that time would be to devote it to developing relationships that position us for winning proposals.

The evidence supporting a relational approach is overwhelming. Firms that make the effort to build relationships enjoy win rates of 70 to 80% with those clients. Firms that don't win only 10 to 20%. Plus the first group will negotiate higher profits, have fewer claims, and enjoy more repeat customers.

There's another important advantage of a relational approach--sustainability. Mere sales go to backlog, which your firm consumes every day. You have to continue making new sales to replenish the lost backlog. Doable, but a hard way to maintain a business. Good relationships, on the other hand, often continue to generate revenue (and higher profits) for years. That's a sustainable business practice!

So what can you do to promote a relational business development approach in your firm? Some suggestions:

Devote prospecting activities to identifying clients with long-term relationship potential. Most prospecting focuses on identifying leads. There's a better way. For an illustration, consider the evolution of online dating. That was a purely transactional activity. Many people who used such sites found it unsatisfying, realizing that what they really wanted was a relationship, not just a night out. So a new generation of matchmaking sites like eHarmony emerged to help their customers find soulmates.

Likewise, behind the RFPs that seemingly are only looking for a "date," many clients desire long-term relationships with A/E firms they can trust and feel comfortable with. Just as matchmaking sites use various screening criteria to determine compatibility, you would be wise to list the qualities you seek in a client relationship and screen prospective clients by those standards.

Allocate an appropriate amount of time to relationship building. As noted above, the tendency in most firms is to devote most of their business development efforts to the proposal stage. If that's true in your firm, consider taking steps to redirect a sufficient portion of that time. You might divide your sales process into four stages: (1) prospecting, (2) cultivating, (3) positioning, and (4) closing (proposal, interview, negotiations). I touched on prospecting above. Positioning and closing involve pursuing a specific sales opportunity.

The cultivating (relationship-building) stage is what firms typically neglect. To address this, make an inventory of all the time spent on business development and try to determine how much goes to each of the four stages. Then determine what proportions are desirable. I don't have any benchmarks to recommend, but would suggest that you at least spend as much time prospecting and cultivating as you do positioning and closing. Then perhaps two-thirds of that front-end portion should be dedicated to relationship building. For many firms, that will require cutting the number of proposals. But that action will be offset by substantially increasing their win rate through greater investment in relationship building.

Serve, don't sell. If you've followed this blog for any period of time, you know this is my core philosophy of business development. It works! Relationships are anchored in trust, and traditional selling (which is viewed by most buyers as motivated by self interest) is hardly the way to build trust. One study found that only 35% of professional service sellers demonstrated real concern for the client. Want to show you care? Serve, don't sell.

If you're going to invest in business development training for your staff, let me encourage you to focus here. No aspect of the sales process is more important than relationship building, and great service is the quickest way to establish trust, credibility, and commitment. Many technical professionals are deficient in basic service skills. That is their greatest shortcoming in selling, not what we think of in terms of traditional selling skills. Plus strong service skills pay off after the sale (see next point).

Don't take existing client relationships for granted. Your current clients anchor your business development efforts. They constitute the largest share of your future sales. They provide references and largely define your firm's reputation in the marketplace. Nonetheless they are often given less attention than they deserve. It's fairly easy to neglect those critical relationships. And that makes it harder to build new relationships.

Recently I was doing a seminar on relational selling and advised participants to show existing and prospective clients their devotion by periodically passing along helpful information they discovered. A simple email and a link, I said, is an easy yet meaningful way to say, "I'm thinking about you." One of my clients pointed out after the seminar that he'd not received one of those emails from me in a long time. Oops! Hopefully he didn't mention that to any of the others. (You get the point...)

Keep the relationship at the forefront even in the latter stages of the procurement process. Even if you've built a strong relationship with the client, it's easy to drift into a transactional approach after the RFP. Don't. There are several ways to leverage the relationship in your proposal and interview. I addressed some of these in a previous post. Beware of diluting your relationship advantage in the fourth quarter!

Wednesday, August 12, 2009

Developing the Next Generation of Leaders (Part 3)

You can select the right people and enroll them in a formal program, but you'll likely struggle to develop leaders if you don't address the influence of corporate culture. This is the third, and perhaps most crucial, aspect of developing new leaders in your firm. See the two previous posts for the rest of the story.

#3. Creating a Supportive Culture

Corporate culture is the sum of behaviors, habits, and rules that influence how things get done within the firm. Culture affects any long-term efforts to get something done, and that includes developing new leaders. But it's especially relevant to this issue because how leadership works in your firm is strongly influenced by your culture.

Leaders are more effective when they know how to leverage culture to their advantage. Yet there are times when culture stands in the way of needed change. Then a leader must really prove his or her worth by leading the difficult process of changing the culture.

A leadership culture. Leadership development occurs most readily in what I call a leadership culture. This kind of culture is characterized by the following:

Leadership is encouraged at all levels of the organization. At the most basic level, leadership can be defined as the ability to persuade others to follow. In this context, anyone in your firm can assume a leadership role, at least temporarily. The best firms promote an environment where personal initiative is encouraged and supported, including engaging coworkers in those initiatives where appropriate. Of course, these efforts must be consistent with corporate objectives and values. But enlightened firms avoid creating unnecessary constraints on personal initiative.

Continuous improvement is a priority. Firms committed to continuous improvement need ample leadership bandwidth across the organization to initiate and guide improvement efforts. Interestingly, when firms take on the challenge of continuous improvement, more leaders seem to arise. It makes sense if you think about it. You don't need more leaders to keep doing things the same way, so few new leaders emerge. But when the need (and the potential rewards) exist, people tend to step up to the leadership challenge.

There is adequate coaching and mentoring. In a leadership culture, leaders invest their time in others. And that provides fertile ground for cultivating new leadership. Most firm cultures I've worked in are only marginally sustainable. That's because leaders don't spend adequate time helping others grow and develop. Forced mentoring programs generally don't work. The dedication to coaching and mentoring must come from willing leaders.

Barriers to a leadership culture. Unfortunately, there several obstacles to creating a leadership culture in the typical A/E firm. If you desire to have such a culture in your firm, here are some things you may need to overcome:

Lack of role models.
It's hard for the next generation to learn about effective leadership if they can't watch effective leaders at work.

Limited upward mobility.
A common complaint I hear among junior staff (and even more senior staff) is the lack of adequate opportunities to advance and grow professionally. this may be due to a number of causes including slow firm growth, unclear career paths, and tightly-held ownership (where there are limited leadership roles for non-owners).

Failure to appropriately delegate. This problem also limits upward mobility. Increasing responsibility and complexity in work assignments is key to developing leadership ability. Unfortunately, many project managers and other managers are not so good at delegation.

Preferential treatment. This occurs when people are promoted into leadership roles for reasons other than their leadership ability. This is all too common, and it stifles leadership development among those who are passed over despite having better skills and potential.

Poorly defined values and standards. These provide the bedrock for building a leadership culture, those few immutable principles that anchor all decisions and corporate activity. Without them, a collective definition of leadership becomes much harder. And fewer people rise up to fill the ill-defined role of leader.

Lack of accountability. Of course, a critical responsibility of leaders is to hold people accountable to do those things that really matter. Where there is little accountability, there is an obvious leadership void. That makes it more difficult to develop the next generation of leaders.

Resistance to change. If you're trying to prepare new leaders, but encumber their efforts with a general resistance to change, you'll not get far in their development. This unfortunately happens quite often. Another way to stifle change is to create too many inflexible rules or unnecessary bureaucracy. Before launching a formal leadership development program, I recommend conducting an honest assessment of your firm's "change readiness." The two go hand in hand.

Thursday, August 6, 2009

Developing the Next Generation of Leaders (Part 2)

If your firm wants to secure effective leadership for the future, you need to be deliberate about it and not leave it to the usual process of "natural selection." In my first post in this series, I suggested a three-prong approach: (1) choose the right people, (2) establish a formal process, and (3) create a supportive culture. This post focuses on the second tier of that process.

#2. Establishing a Formal Process

The best leadership development programs combine multiple approaches including training, coaching, group forums, on-the-job exercises, and assigned readings. The following outlines some key elements of an effective leadership development program:

Make it a process, not an event. I suggest a program that extends over 8 to 12 months with multiple activities each month.

Keep it hands on. Don't spend too much time on leadership theory. Make it practical and directly applicable to the real-life situations that participants are facing.

Use ongoing coaching. This is critical. Research reveals that skills training is only effective when combined with ongoing feedback and encouragement. Ideally coaches will come from your own staff. But if you don't have people with the requisite skills or commitment, look for outside help. (See my earlier post on coaching.)

Incorporate self assessments. Various testing and survey instruments can be used to enable participants to define their natural competencies, leadership and communication styles, attitudes, knowledge, and progress over the course of the program. One of the key attributes of effective leaders is a keen self awareness.

Tailor the program specifically to your firm. Beware of canned leadership development programs. Your firm's culture and practices will impact how leadership is exercised effectively within your organization. Participants will also tend to dismiss any leadership training that does not specifically fit their situation and experiences.

But seek some outside help. To avoid simply reinforcing the status quo, you should get some outside consulting help. The amount depends on your budget, internal resources, and objectives. The external perspective, credibility, and objectivity of a consultant can add significant value to your program.

Demand significant commitment. To do this right requires some sacrifice, both on the part of the firm and the participants. Define in advance what the firm and management is willing to invest in leadership development. Then clarify expectations for participants and invite them to opt out at the outset if they're not willing or able to devote the effort.

Program content. There are many directions you can go with training topics and exercises. Let me suggest that you focus on four specific areas: (1) people and communication skills, (2) time management skills, (3) ability to effect change, and (4) business acumen. Here's a list of possible topics:
  • Leadership styles
  • Emotional intelligence
  • Motivating others
  • Team building
  • Communication skills (including persuasion)
  • Time management
  • Leading change
  • Client skills
  • Business development skills
  • Organizational management skills
  • Enabling leadership in others

Some things to avoid. Once again, there are some common approaches to leadership development programs that I would encourage you to avoid, or at least critically evaluate before committing yourself:

Don't waste your time and money on crash courses and quick fixes. Leadership development is a long-term process. Training seminars and books on leadership are useful tools in an overall program, but don't accomplish much on their own.

Don't take a smorgasbord approach to program content. Some firms bring in multiple speakers or have participants read different books. I'm certainly not against incorporating different perspectives, but I'd urge you to define some common themes and definitions and stick to them. Leadership is a complex topic. Your objective is to simplify it so that participants can better apply it.

Don't use the program to indoctrinate into the status quo. I've touched on this previously and repeat it here because it's a common trap. Clearly, you should seek to replicate the best aspects of your current management. And you want to reinforce the strengths of your values, culture, and practices. But since leadership is about change, you want to be careful about reining in your new leaders too much.

Don't put too much stock in personality typing schemes. Understanding your personality and the differences among people is certainly a valuable skill. But some leadership programs, in my opinion, put far too much emphasis on this aspect of dealing with people. Personality typing schemes are prone to making quick characterizations of people that minimize their individual uniqueness. I've participated in several of these and I've never been that easy to characterize. I assume this is true of many others. There is no substitute for getting to know people as individuals rather than as personality types.

Plus leaders are often dealing with groups of people where tailoring your approach to each personality type is difficult, if not impossible. Among the different approaches, the Myers-Briggs assessment is the most thoroughly researched. But studies also point to abuses of this system, so use it or any other with some restraint.

Don't allow participation and effort to diminish over the course of the program. Given an 8- to 12-month duration, it's natural to see some loss of momentum over time. But isn't one of the traits of effective leaders their ability to keep the effort going over the long term? I'd suggest changing the format, making the material increasingly practical and hands-on, stepping up active coaching, and maybe even taking a month off as ways to avoid a drop-off in interest in the latter months of the program.

In my next post we'll take a closer look at the third prong of an effective leadership development strategy--creating a supportive culture.