Norming Your Value


When you average your added values on an application-per-operation-per-industry basis, you come out with your norm for your ability to add value to that operation in that industry with that application: your normal value. A norm is the composite of your consultative expertise in improving customer profits. Consultative sellers who sell from their norms are routinely able to say provocative things to their customers:

"According to our norms for the optimal layout for a print shop of your volume and type of production," 3M can say, "your current layout is depriving you of up to $1 million in profits every twelve months of operation."

"According to our norms for an optimal receivables collection system for food processors," AT&T can say, "you can improve the profit contribution of your current system by an average of $500,000 a year."

Norms are the consultative penetration tool. All consulting professionals work from norms, whose metrics represent their track record—their single most important possession and the foundation of their reputation. When their norms are the industry standard, they can use them to issue a "norm challenge" against a customer's current norms as well as competitive norms. The challenge develops leads. Here is the standard of performance for this critical success factor in this business function or business line, it says. How do you compare? If my norms are better than yours, ask me how I can bring you closer.

IBM sales representatives apply their norm templates to the manufacturing operations of pharmaceuticals makers like this:

Our model design for automating a process like yours can help you reduce up to $200,000 in labor. According to our norms, your manning is excessive by five workers. Your control process is also slower than our standard in spotting and alerting you to deviations from specification. This will be reflected in added costs for quality assurance, scrap, and downtime. You can avoid these costs by computerizing your product testing and quality assurance. The difference between our models in these areas and your operations can yield you up to three quarters of a million dollars in the first year.

Unless you know the norms that a customer manager uses to make decisions and address them head-on in your PIPs, you can never achieve a one-to-one acceptance ratio of PIPs proposed to PIPs closed. Airbus learned this lesson when it came to Bob Crandall, when he was CEO of American Airlines, to propose a purchase of its 600-passenger jet based on a lower cost per seat mile than the Boeing 747. Crandall never looked at the Airbus cost-benefit analysis. Because he rejected the criterion on which it was based, it was irrelevant whether or not its numbers added up. "Big planes pay off only when they fly full," he said. "People don't want to get into an airplane that has 600 people and go to a place where they have to stand in line for two hours to get through customs." As a result, he concluded that "the fact that it's cheaper to fly per seat doesn't make any difference. The real cost is how much it costs per passenger."

Airbus may turn out to be more accurate than Crandall in assessing the market for big planes. It makes no difference. Crandall may be wrong about cost per passenger being more important than cost per seat. It makes no difference. As long as Crandall's key performance norm is cost per passenger, that is where—and only where—he will look for a signal to buy.

Your norms announce what is special about you: You know how to improve the profits of certain types of business operations. You know the standard specifications of what their profit values can be for these business functions; indeed, you are probably the discoverer and maker of many of them. If customers already exceed your norms, you can help them maintain competitive superiority. If your norms are better than a customer's current performance, you can help bring the customer up to your standard values.

Your norms—not your products—must become your consultative stock in trade. You sell consultatively by superimposing them over the current norms of customer businesses. A customer's new product norm may be only a plan. It does not matter. The plan contains a pro forma financial projection of the business-to-be. This is its as-if norm: as if it were up and running. Your norm is an if-then model: If the customer adopts your solution, then the customer norm more nearly approaches your own. The customer becomes improved.

At any given time, you can assess your competitive advantage as a consultative seller—in other words, the value of the net profits you normally contribute to your customers—by checking out your norms according to three criteria:

  1. Are they better than enough customers' current performance? If so, you will have continued proposal opportunity.

  2. Are they better than your customers' industry average performance? If so, you may have a competitive advantage over other consultative sellers to bring customers up past their industry average.

  3. Are they better than or as good as each customer industry's best practices? If so, your norms are the industry standard of performance for all customers who want to achieve best practices.

Templating Proposable Leads

A consultative seller's database must be compartmentalized into three modules that he or she can scan left to right to target proposable leads:

Our Norm

Industry Average Norm

Customer's Current Norm

For the seller, Our Norm must be better than Industry Average Norm in order to be the norm leader. Our Norm must also be better than the Customer's Current Norm performance in order to have a proposal opportunity, either to improve customers to the level of industry average or to bring them closer to "our norm."

Norms give a consultative seller the vocabulary to speak in business-ese like this:

  • Our Norm for average cost of recordkeeping of purchase orders, inventory reconciliation, and other related transactions in your product category is X dollars. Your cost is three times higher than our norm.

  • Our Norm for average sales per square foot in your product category is X dollars. Your sales are five times lower than our norm.

  • Our Norm for out-of-stock in your product category is X times per quarter. Your out-of-stock is six times greater than our norm.

Using norms, a consultative seller can get a handle on a customer's perception of the values that can be added by conducting challenging dialogs like these:

  • "It takes you 3.0 hours to complete a design cycle. Our norm is 1.7. What is the value to you in costs saved and faster revenues for every 30 minutes we can bring you closer to our norm?"

  • "It takes you 72 minutes to make a die changeover. Our norm is 46. What is the value to you in costs saved and faster revenues for every 10 minutes we can bring you closer to our norm?"

  • "It takes you 3.6 years to introduce a new model. Our norm is 2.9. What is the value to you in costs saved and faster revenues for every 30 days we can bring you closer to our norm?"

Your norms are your value metrics. They say that there is a better way than the one the customer is currently practicing. The profit difference between the customer's way and your norm represents your added value. If you can enable a customer's new product, for example, to enter its market one month earlier than its plan, the dollar value of that month's earnings and the advance of one month in achieving payback of the product's funding represent your added value.

The first thing that you should propose to a customer is your norm for the customer's business or business function. "If your operation can more closely approach my norm," you can say, "some or all of the added value representing the difference between them can be yours."

What you do not ask is as important as what you do ask. You do not ask, "Do you want my product, service, or system?" Nor do you ask, "Do you want my solution?" or "Do you want to buy from me?" You need only ask whether the customers want their operation to approximate your norms more closely. When you ask that question, you are proposing to sell in a consultative manner. When the customers ask how they can make their operation come closer to your norm, they have begun to "buy" from you.

As soon as you know your normal benefit on an application-per-function or application-per-operation or per-process basis—they are all ways of saying the same thing—you can use it in two ways:

  1. To target leads fast in customer operations where the current revenue performance is below the level of your norms or where the current cost performance is above them.

  2. To get to proposal fast by presenting a preliminary benefit that can bring the customers' current performance closer to your norms.

You want to be able to say something like this to command a customer manager's attention:

We are experienced in improving the contribution to profits made by your operation. Our norms show that managers who implement our solution can increase their revenue contribution or decrease their cost contribution by approximately $x within y period of time. How do these norms compare with your current performance? If performing closer to our norms can make you more competitive, what if we can work together the way we are proposing to achieve a $000 minimum improvement within the next 00 months?

Creating Norm Warehouses

The norms you work with come into play as soon as you choose a category of performance you want to improve in a customer operation where you believe you can bring the contribution to profits closer to your normal performance. At that point, you compare the customer's current performance against your norms. If your norms are superior, you have a lead to prepare a Profit Improvement Proposal.

A matrix for warehousing your norms on an industry-specific basis is shown in Figure 1-1. For each line of business or business function that you sell to, enter the major operations within it that you affect across the horizontal axis and your major applications that can improve their performance down the vertical axis. Where each application intersects each operation, the matrix shows your normal range of added value. Your norms that rank as a customer industry's best practices identify the categories in which you can be the "category killer"—the owner of the standard value of its outcome. Killer norms are your brands, your "product line" of high-margin earners in return for their high added value.

click to expand
Figure 1-1: Norm matrix.

Norms that are not best practices identify your commodity applications. They earn you less and cost you more to sell because you must compete against someone else's category killers.

When a customer operating manager calls out, "Who owns the norms for my performance in this category?" your voice must be the only one to answer if the question addresses one of your category-killer applications. If someone else answers, you may be redundant. If everyone else answers—which means that no one owns the norm—you are a vendor even if you call yourself a consultant.

A Norm-KPI Matrix modeled on the App-Op Matrix shown in Figure 1-1 can be used to provoke lead targeting by highlighting applications whose norms can improve key indicators of a customer's performance. This can make proposable PIP opportunities transparent and enable more fast closes.

In the form of digital dashboards, both matrices can be installed on a corporate intranet for real-time access on a 24/7 basis. They can be made customer-specific, so that only each customer's account manager can view them, or they can be open to an entire consultative sales force on a collaborative lottery basis: anyone who is first to suggest a winning value proposition receives a bonus that is percentaged on total PIP profits.

Digital dashboards can also be created to enable online assessment of consultative sellers' performance by their sales managers. An automated data collection process can help keep tabs on how each individual seller is performing according to key indicators as well as on team, industry, and regional performance. Key consultative seller performance indicators can include the ratio of PIPs closed to PIPs proposed, average cycle time to close, average investment-to-profit ratio per close, and average value of each migration PIP.

Making Norms Industry-Specific

Norms are meaningless unless they are industry-specific. Industry designations do not get specific until they are defined by a three-digit Standard Industrial Classification (SIC) code, such as the seven classes of Primary Metal Industries:

SIC Code

Industry Subcategory

331

Blast Furnaces and Basic Steel Products

332

Iron and Steel Foundries

333

Primary Nonferrous Metals

334

Secondary Nonferrous Metals

335

Nonferrous Rolling and Drawing

336

Nonferrous Foundries

Within each three-digit code are four-digit subclasses. The code 3321 contains gray and ductile iron foundries, while 3322 contains malleable iron foundries. As a general rule, three-digit norms suffice. But if you do a lot of business in a four-digit subclass, it will pay you to correlate your norms to its improved outcomes. Otherwise, a niche specialist can beat you.

Your norms must average the aggregate values you contribute to a specific operation in a line of business or business function in the industry as the result of each application.

Applications must be equally specific. The exact specifications, configurations, or installation requirements of an application may vary even within the same industry. Your norms should account for them by being prefaced with predictive modifiers, such as:

  • Above/below average engineering changes

  • Above/below average specification deviations

  • Above/below average labor content

  • Above/below average use of multiple materials

  • Above/below average production of multiple parts

  • Above/below average generation of multiple product variations that cause multiple customized setups

  • Above/below average length of production runs

If you sell to manufacturing customers, you should create a correlate to the SIC classification system with an SPC Index for Standard Process Classifications and an SCC Index for Standard Cycle Classifications. You can model them like this:

Standard Workflow Classifications

001

Information Systems Workflow

002

R&D Workflow

003

Engineering/Product Development Workflow

004

Manufacturing Workflow

005

Inventory Workflow

006

Sales and Service Workflow

Standard Cycle Classifications

101

Product Design and Development Cycle

102

Production Cycle

103

Inventory Cycle

104

Order Entry/Shipment Cycle

105

Billing and Collection Cycle

106

Sales Cycle

A norm's worth is derived from its specific application-to-operation nature. This is the only way that your norms can act as shorthand representations of your ability to solve customer business problems: your norms for costs saved by reducing labor content or reducing scrap in a manufacturing operation, or your norms for revenues gained by speeding up product design and development cycle times in R&D.

Selling based on customer industry norms is commodity selling. Industry norms are commodities. They are available to you and to your competitors alike. They give you no meaningful differentiation. Nor do they give your customers the competitive advantage to take leadership even if you succeed in improving their current norms to the industry level. Industry norms are competitive floors, not ceilings. To perform at or near the industry norm is merely a customer's entry pass into competition, not a badge of superiority. Competitive parity is signaled by the industry norm. Competitive advantage takes place above it.

Bringing Customers Closer to Your Norms

As a norm leader, you can offer customers a demonstrable advantage over their competitors by bringing them closer to your norms, which should be significantly superior to the industry average. This ability—to help your customers compete more cost-effectively—is your own competitive advantage as a consultant. It transcends your product price and performance, your deals and discounts, features and benefits, or any other aspect of your business and its sales propositions. It is the added value that your customers buy when they buy from you.

Without norms, you cannot quantify prospective customers. You may be able to learn where they hurt; where their "pain points" are. But you cannot know how much you can ease the pain, if at all, or how long it may take. Nor can you know the value that easing the pain can add to the customers' operation where the hurt—or opportunity—is located.

If your customers are providers of supply chain management software and you supply solutions to businesses in the SIC code 7372, your experience tells you that they derive revenues primarily from software licenses and services such as consultation, maintenance, and training. You also know that their two major cost centers are R&D and sales, both of which account for about two-thirds of their total costs.

You are most likely to target your leads where the customers' major sources of revenue bunch up and where the major costs cluster. But without norms, you can end up asking of everything you learn, "So what?"

What if you learn that the customer's revenues from license fees have decreased 38 percent from a year ago? So what? If you do not have norms for the value you can add to license fee sales, how can you make a compelling proposal to increase them? By how much can you normally raise them? How soon? How sure can you be?

What if product development costs have been increasing by an average 23 percent year over year? So what? Can you help speed up the customers' innovation cycle time? Can you help expand the number of commercializable products that come out of their R&D? You cannot answer these questions unless you know how much value your solutions normally add and how soon they normally add it. Within the context of your norms, you can calculate your value propositions with maximum certainty that they can pay off.

If the customers' profits are coming more from turning over licenses at discounted fees instead of high unit margins, can you help? How sure are you? If their selling cycle takes an average of twelve months, can you reduce it? By how much? How soon? At what value to the customers? Based on the value, at what price to you?

The superior level of your norm value—superior to both the industry average and your customer's current performance in an operation's dollar contribution to profits—should brand you as the partner of choice. By contrast, your competitors who sell from industry norms will be selling commodities. Even though they can propose customer improvement, they cannot propose leadership.

Maintaining a superior norm margin is crucial to your branding. Every time you perform below it, you lower it; every time you lower it, you come back to the pack of competitive commodity suppliers. This is your main incentive to work at your best. It also warns you to work only with customers who want as badly as you do the growth that your norms promise, who have the managers and support staffs who can partner additively with you, and who will be impressive references for your track record as norm leader.

A model set of norms, in this case "norms on a card," is shown in Figure 1-2. The information on this three-by-five-inch card represents the normal savings that an automated process controls supplier can make in the major cost contributors to a pulp mill's operations.

Critical Success Factors

Norms for Cost Contrib/YR[*] ($000)

Labor

4,000

Chemicals

4,600

Wood

2,300

Energy

2,100

[*]250, 000 Ton/YR Mill


Figure 1-2: Norms on a card.




Consultative Selling(c) The Hanan Formula for High-Margin Sales at High Levels
Consultative Selling: The Hanan Formula for High-Margin Sales at High Levels
ISBN: 081447215X
EAN: 2147483647
Year: 2003
Pages: 105
Authors: Mack Hanan

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