Guaranteeing Results and Gainsharing Rewards

Once a PIP has been accepted, even before its value has been realized, the consultative sellers' customers are already counting on the new earnings they just contracted for. They will find sources of investment for the project's earned funds just as soon as the funds are available, not wanting to waste a minute in putting them to work. They will depend on their being available on time and in the amount promised. If they are not available, customers suffer a shortfall. They will also suffer a lost opportunity.

Since funds still "on the come" are already invested as if they were real as soon as they are proposed, failing to realize them can be a catastrophe. The funds are planned for. If they are not going to be delivered, the customer will be surprised. It is not necessary to say "unpleasantly surprised." Managers learn early in their careers there is no such thing as a pleasant surprise; all business surprises are unpleasant.

There is no substitute for guaranteed results. When you guarantee your solution, you are acting as a coguarantor, a cosigner of your proposal. Your Box Two partner is the actual guarantor. Your partner is the true receiver of corporate funds, choosing to invest them with you. This makes each Box Two manager the ultimate responsible party whose career success or failure is at stake and whose reputation as a "good manager" is enhanced or downgraded by your proposal's effectiveness. Simply by the act of endorsing your proposal and going public as its sponsor—your internal "economic seller"—customer managers are implicitly guaranteeing that they will return their company's funds plus a profit. When you partner with them, you inherit the same obligation.

Guaranteeing your results is the ultimate answer to the customer's question: How sure? By establishing a floor for your payoffs, it allows you to eliminate the ceiling on your reward. Once you achieve your guarantee, you can ask to share in any gains over and above it.

Gainsharing is an alternative to price. It is based on an understanding between a supplier and customer that their business together should be a mutual value exchange. The supplier should grow the customers by adding value in the form of increases in their revenue capabilities and cost savings. In turn, the customers should grow the supplier by adding value in the form of enhanced margins at high volumes.

A supplier and customer who cannot make money with each other—not on or off one another—cannot grow each other. If they cannot grow each other, they cannot partner, because mutual growth is what partners do day in and day out.

Gainsharing is the partnering strategy for growing value and for mutually participating in its gains. It rewards the partners' mutuality of objectives, their mutual strategies to realize them, and their mutual acceptance of risk. It positions suppliers as growth consultants whose essential capability is to add value. As an opportunity-seizing and problem-solving approach to doing business, gainsharing dedicates suppliers to wealth creation, not just to the creation of products or services. It puts them in the business of manufacturing and marketing wealth.

The emergence of a basis for gainsharing at Boeing illustrates the incremental but nonetheless progressive nature of the change. Originally, Boeing went into the market to "find the suppliers with the lowest bid and monitor them so they don't screw up." Then Boeing began to "find the suppliers who make the best product and make them part of the process." Boeing's emergence will be complete when it sets out to "find the suppliers who can create the most new wealth with us and partner with them by sharing the gains."

Gainsharing is neither a supplier strategy nor a customer strategy. Both benefit; neither incurs a downside. The mutual nature of the reward should drive both of them to gainshare whenever a unique value can be added to a customer operation that contributes to a superior gain.

Other factors along the lines of avoiding or diminishing negative outcomes also favor gainsharing and, in some cases, tend to make it inevitable:

  • Few suppliers are able to recover enough margin on product sales to refertilize their R&D with sufficient funds to ensure continuous short-term innovation cycles. Product acquisition has become a cost-control function, pushing suppliers' price points inexorably downward toward zero cost.

  • Few customers are able to achieve and maintain best practices as their industry's low-cost manufacturer or high-share market leader by relying only on standard solutions produced by their suppliers. Standard solutions yield standard practices. Yet no suppliers can afford to provide custom solutions at cost-controlled price points and still achieve low-cost supplier status for their own business. The only way to obtain funds for custom solutions is through gainsharing.[1]

  • Person-to-person negotiation between customers and suppliers on price has become cost-ineffective, adding both direct and opportunity costs to the customer's cost-controlled process of acquisition and adding to a supplier's cost of sale. It is only a matter of time before it becomes unaffordable to both parties to allow sales representatives and purchasers to negotiate commodity transactions based on price. When human beings are involved in negotiations about exchanging value, gainsharing is the only affordable subject to debate.

[1]The authoritative guide to sharing in the contributions made to customer profits is available in Gainsharing : Alternative to Pricing by Mack Hanan and Jon Feinstein, (New York: The Greymatter Group Inc., 1999).

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 © 2008-2017.
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