Businomics Blog

Management of Sales Effort in Economic Recession and Recovery

The way you are managing your sales staff my cost you market share in the recovery.

There are two basic ways to evaluate sales representatives: results or effort. Using results makes sense for experienced sales reps in an average market environment.  Many people will manage with effort (counting calls made, visits made, hours logged, etc.) for new sales people, on the theory that if you get them to build the right habits, you can then switch over to managing by results after they have come up to speed.

But in the recession, management realized that results would be lousy, even for good sales people.  So they stopped evaluating by results.  Oh, the structure of the rewards system was still results-oriented, but poor performance was tolerated because, heck, we're in a recession.  But this left companies with no evaluation whatsoever!

So you'll switch back to using results once sales increase.  But by then it will be too late!  The first round of orders will go to those sales people who have been making the effort: making the calls, visiting prospects, even when nobody was ordering.  If you wait for the recovery to get back to evaluating people, you'll lose market share before you know it.

Here's what I'm saying to my business consulting clients: use your sales or contact management system to set up a process to ensure that the calls are being made.  Make sure that no prospect is being lost in the cracks.  For example, if there are 143 prospects who should be contacted once a quarter, senior management needs a report that tells them how many of those prospects actually were contacted last quarter.

You have to evaluate your sales staff on something.  If it's not going to be results, make it effort.

Now Tweeting as BillConerly

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The Economics of Technology and Labor: Time to Rethink Your IT Program

I was sitting with a consulting client evaluating their readiness for the economic recovery, using my basic economic consulting process.  The client mentioned that he had considered a project to automate one of their manual processes, but it didn't seem to pencil out.  It turns out that was three years ago.

Today I was in a conversation with my favorite information technology consultant, Caleb Jones, and he talked about the value of a periodic IT audit within a company.  Putting the two conversations together, I just had to grab these charts to compare labor costs with the cost of technology.

The CPI chart is not perfect; it reflects hardware but not the consulting services often needed to implement IT solutions.  But the gist of the message is very strong:  Labor costs are rising, while computer costs are falling.  If you made the perfect decision three years ago, that decision is now out of date.

Gee, you thought running a company would be easy?

Checklist for Business Planning in an Economic Recovery

A reporter needed a sidebar, so I created this checklist for business planning in an economic recovery:

·         Sales people—are they making all the calls they can?

·         Do you have the inventory needed to serve your most important customers?

·         Do you need to ignore peripheral markets to serve your core market?

·         Do you have the cash or financing to purchase materials and pay workers when orders increase?

·         Can you use the downturn to lower your costs, such as building rental?

·         Can you buy used equipment at a bargain-basement price?

·         Can you acquire a weak competitor?

·         Do you have a plan to find additional workers when the economy recovers?

·         Do you have a plan to train and integrate into the workforce your new hires

For more background on these items, see my article "Business Strategy for the Economic Recovery."

What Economics Majors Should Know About Graduate School

This post is for college students who are interested in economics and thinking about graduate school.  There's an article aimed at the academic economics profession that you will find insightful.  Dave Collander and KimMarie McGoldrick have written The Economics Major and Liberal Education.  Here's a key section:

Instead of serving to strengthen liberal education by providing depth in one area, the undergraduate major has become more vocational. Viewed as preparation for graduate school, the disciplinary major channels passion for learning to a small group of future researchers and professors. Providing a liberal education and instilling a passion for learning in undergraduate students who do not wish to go on to graduate school is a secondary goal of teaching, and it is incorporated only to the degree that it fits the needs of the departmental major.

As the power bases for individual disciplines have been reinforced by faculty training and institutional structures, the power base for general education has shrunk. And as disciplinary majors have become more deeply entrenched, the disconnect between the major and the goals of liberal education has widened. The result is that often students with generalist interests are not provided with the catalyst for further learning and engagement, despite continual attempts by colleges and universities to achieve that end.

and

... those who are most passionate about undergraduate teaching are unlikely to make it into a top graduate program in economics. In part, this is because the training offered by top graduate programs is unattractive to these potential graduate students. But even more, it is because these are not the type of students that graduate programs are looking for; training students to be good teachers is not what graduate programs in economics see as their goal. In lower-ranked graduate programs, the focus on training researchers as opposed to teachers is less pronounced, but it still exists—in part, because these programs are staffed by graduates of the top programs.

The take-away is advice I've been giving for years: go to graduate school in economics only if you really, really, really cannot imagine doing anything but economics, and you will be forever regretful if you don't get a Ph.D.  If you are simply thinking that it will help your job chances, go directly into the workforce.

Luxury Markets Will Come Back in the Economic Recovery

For years I heard sellers of luxury goods say, "The rich will always have money."  Then the recession came and we learned that the rich will not always spend their money.  As an example, I wrote a blog post using the mega-yacht business as an example of the economics of the luxury market.

Now some hot-shot quantitative economists have illuminated me even more.  Jonathan A. Parker and Annette Vissing-Jorgensen (both of Northwestern University) have written a paper about how consumer spending varies across the business cycle.  Their conclusion is that the spending of the upper income groups is much more variable than the spending of lower income groups.  (The article appeared in the American Economic Review: Papers and Proceedings, May 2009.  Available here: Who Bears Aggregate Fluctuations and How?)

The find that the variation of spending over the business cycle for the top 10 percent of the income distribution is five times greater than for the average household.  The higher up the income distributions you go, the greater the variability.  Here's a common sense explanation:  if you're buying rice and beans, you keep on buying rice and beans all the time.  When you are buying caviar, you can step back to lobster if you get nervous about the economy.

They also report that this pattern is much more prounounced since 1980.  In the old days, the rich had more stable incomes, probably because they worked little and earned their incomes from dividends and bonds.  Since then, work income has become greater, as has capital gains.

Business implications for the luxury market:  Don't give up.  When the economy turns, upper incomes will turn more than average incomes, and spending will go up sharply.  Although we have not calibrated the change in consumer attitudes due to the recession, I expect that the upper one percent of the income distribution will return at least partially to their old spending patterns.  Be ready to serve them.  (You can listen to my thoughts on What Business Needs to Know About the Rich.)

How Strong Will the Economic Recovery Be? A Chart to Accompany James Grant

"The deeper the slump, the zippier the recovery."

That is James Grant's judgment in a nutshell.  The conclusion surprised me, not because I disagree, but because I'm used to Grant being pretty bearish.  His Wall Street Journal article is illustrated with photos of Roosevelt, Greenspan and Buffett (not Jimmy), as well as cute animals.  No wonder the paper is losing money.  His conclusion cries out for a simple chart.  Let's look at the data!

Here it is.  The peak-to-trough change in GDP is shown on the vertical axis.  The growth over the following four quarters is on the horizontal axis.

Note: if the current recession troughed in the second quarter of this year at a level equal to the preliminary estimate, then our peak to trough is about minus 3.7 percent, right there at the bottom of the chart.  Imagine a line through the points, and you find this recovery at about 11 percent.

This ain't science, and I wouldn't make a forecast using this methodology.  However, it leads me to wonder if I'm being much too conservative in my own economic forecast.

A final note on the data: the sharp readers are wondering how one recession showed positive GDP growth.  That was 2001, a fairly mild recession.  The actual cycles are set using monthly data, then we do GDP studies by grabbing the quarters that contain the peak and the trough.  For a short, mild cycle, it's possible to get weird quarterly numbers.

Is The Recession Over? My Sound Investing Interview

Paul Merriman and Tom Cock led off with the recession question in their Sept. 18 interview.  The Bill Conerly interview starts in the 8th minute (no stoppage time).

One listener asked me to elaborate on my brief remark about the reappointment of the Federal Reserve chairman.  More details are in this blog post about Ben Bernanke.

New Economic Newsletter Released--Finally Some Good News

The Businomics(R) Newsletter for September has been released.  Take a look at my free economics newsletter.  You can subscribe by scrolling down to the bottom of the charts, or just shoot me an email right now.

Businomics Now on the Kindle: If You Need to Connect the Dots Between the Economy and Business Planning

Businomics is now available for the Kindle from Amazon.  This is the book that helps business leaders understand how to manage their companies in a changing economic environment.  For you hard copy folks, more information here.