PIPping a PIP a Minute

Automating the proposal process makes it easy to produce a continuous series of PIPs, improving your productivity as a profit improver a hundredfold while reducing your PIP cycle times close to zero. The PIPWARE software program permits you to create "a PIP a minute." A new iteration of what-ifs can be prepared every sixty seconds in a professional business case format that can be closed right off the computer screen.

Figure 9-1 shows how PIPWARE software automates the calculations of costs and benefits whose work flow is shown in Figure 3-1. Figure 9-2 shows the ease of entering multiple what-ifs? into PIPWARE to calculate alternative outcomes.

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Figure 9-1: PIPWARE cost-benefit analysis.

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Figure 9-2: PIPWARE what-if? options.

The PIPWARE proposal is a ready-to-close request for an allocation of funds. It presents each proposal's business fit and its contribution to an objective that accelerates its realization in terms of net profits improved and annual cash flows. PIPWARE also documents each source of the customer's improved profits, the individual amounts contributed by revenue increases and cost savings, the rate of return on the customer's investment, and its payback period.

PIPWARE's cost-benefit analysis follows the same 1-2-3 rank order of internal customer requests for funds:

  1. The investment, which is the "cost" in the cost-benefit analysis that includes the acquisition costs of the products, services, or systems you are proposing. If gainsharing is the method of customer investment, its amount can be bundled in the single line item on the Cost-Benefit Analysis called Total Expenses, or it can be highlighted as a Co-management Share deducted from net after-tax profits.

    How can you determine the optimal customer investment for the PIP's top line? The easy way is to apply your norms for past investments that have been made for similar solutions applied to similar customer operations that have yielded a satisfactory IRR (internal rate of return). Otherwise, a safe rule of thumb is that an optimal investment yields an internal rate of return that is no less than two times a customer's hurdle rate for incremental investments and not more than 100 percent.

    Any lower IRR cannot be compelling. Anything higher means that you are leaving money on the table.

  2. The benefits, which include all future cash flows from incremental sales revenues and savings that the investment can achieve from reduced variable costs such as labor, materials, maintenance, scrap, or downtime.

  3. The rate of return, which compares the benefits to the investment.

A cost-benefit analysis is not a cost justification, which is what vendors use to sugarcoat their costs. In Consultative Selling, there are no costs to justify. Because consultative sellers realize a return that exceeds their costs, all costs become investments of current funds that are made to bring in future flows of cash that pay them back and keep accumulating to show a profit. A positive return means that cost is zero. Once you can show that an investment will cause a positive return, the anticipation of the return compels the customer to make the investment.

Through PIPWARE, you and your customer can preview in real time every likely consequence you can think of for each proposal option over the course of a profit project's commercial life in ways like these:

  • What if we cycle the investment over two or more years instead of front-end loading it in year one—does that make our project more fundable?

  • What if we cut back on the investment in year one to get to payback faster—does that make our proposal more closable?

  • What if we cycle a series of short-term investments and plow back their returns so that we can self-fund 50 percent or more of each successive project—does that move us closer to the front of the line for approval?

Information technology applied to the PIP process has been revolutionizing Consultative Selling. PIPs are cycled faster. Meantime between PIPs is reduced. Arithmetic errors are impossible to make. What-if iterations can be made one after another in order to get to the optimal solution. PIPs can be presented electronically or telephonically, sent by e-mail or posted on a Web site. They can be stored in a corporate retrieval system for sharing. Sales managers can access them for coaching and counseling on-line. Suppliers and their third-party business partners and strategic allies can co-PIP no matter where they are in the world. Multiple customer locations can be PIPped simultaneously.

Technology endows each consultative account manager with instant access to human and computerized data resources anywhere in the world. It permits daily, even hourly, virtual teaming that brings together the global expertise of technical, financial, and business development business partners as well as customers. It makes possible the remote ability to create an infinite number and variety of sales proposals on a 24/7 basis. It multiplies each consultative seller to act as a sales force of one.

The explosive power of information technology[1] is revolutionizing the strategy of business-to-business sales, the size, composition, and management of consultative sales forces, and the style and substance of the supplier-customer relationship. New definitions are being crafted for what constitutes best practices in terms of sales productivity percentages and revenue-to-investment ratios, for customer contribution and share of market penetration, for historic standards such as cost of sales, selling cycles and quotas, and for the social and political contexts of the consultative sales call.

All earlier forms of account management, symbolized by the vendor sales representative who is typically product centered, geographically bound, information constrained, and limited by the clock and custom to less than 20 percent of his or her total time actually spent in selling, are endangered species. They are today's equivalent of the twentieth century's salesperson with a briefcase and a smile.

IT has become the enabler of PIP immediacy, continuity, and universality. In these ways, it acts as the multiplier of consultative sales force productivity. The number of "feet on the street" is meaningless. PIPs proposed and closed are what count.

PIPWARE mimics the consultative seller's thought process from the first moment of targeting a lead to agreeing with the customer on the single best solution to the problem or opportunity it presents. PIPWARE's built-in thinking goes like this: "Which of my customer's strategic business objectives can I fit into? What operation in a line of business or business function that I can affect must I improve in order to make a contribution to the objective? What is the revenue or cost target that my customer manager's performance is being measured on? What is the minimal improvement that will give that manager a significant competitive advantage? What is the most cost-effective solution to deliver the improvement?"

By tying each PIP to an objective of your customers' strategy, you enter into their business. In effect, you say something like this:

Your business strategy commits you to internally finance the development of several new product line extensions. Here is a cost-effective way to bring in $25 million of incremental cash flow over the next five years. This will pay for your total R&D costs plus a third of your test marketing for three line extensions.

Business fit should be as customer-specific as you can make it. If you were PIPping ALCOA, for example, when Paul O'Neill was chairman and you read in his annual report's president's letter that ALCOA was tightening capital spending and attempting to reduce costs across the board, you could present your PIP as fitting his objectives like this:

"This proposal accelerates ALCOA's strategic business objective of increasing sales revenues and increasing fixed asset turnover without adding to capital expenditures, and at the same time, decreasing unit costs."

[1]The authoritative guides to the empowerment of Consultative Selling by information technology are available in two publications by Mack Hanan (New York: The Greymatter Group Inc., 2002): Consultative TekSelling, which prescribes how the reach, impact, and frequency of proposal presentation can be amplified by collaborative teaming, electronic databasing, and customer-integrated proposing; and Consultative e• Selling, which prescribes how to convert the Internet into a high-value high-margin sales channel.

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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