Most companies want to have high utilisation across their organisation, including sales. When people work a lot, a lot of work gets done. It makes sense and sounds innocent, right?
Well, let’s discuss this.
If a sales organisation wants to win business and meet their growth targets, they should work hard. The more you work the more you accomplish. But it is not so simple.
The efficiency paradox states that organisations need to choose between “high capacity utilisation” and “short throughput time”. Capacity utilisation means that our “production”, sales people, work hard and all the time. The drawback with this approach is sub-optimisation. We can easily assign new work to individuals and have them working hard. Unfortunately this does not guarantee the desired outcomes. Too often sales people end up spending quite a large share of their time with wrong customers and wrong opportunities. They are busy and working hard, but the sales process does not flow as it could.
“Short throughput time” (or flow efficiency) means that we focus on finishing quickly what ever we start to work on. If we consider the sales process, focusing on flow optimisation means looking at all the steps and activities one individual sales opportunity goes through during its journey from a lead to order. Typically sales processes have 5-6 steps and both sales people and customers take number of actions and decisions through out the process. If we look at the overall sales cycle length (from identified lead to order) and consider how much time is spend actively working with the opportunity (either by selling organisation or potential customer) we realise that the proportion is very low.
E.g. Sales cycle in solution business is 4 months (that is 640 hours based on 20 business days per month and 8 hour days), during which the selling organisation performs three customer meetings (3 x 1 hours) and prepares materials, proposals and drafts contracts (15 hours in total). In total the selling organisation spends 20 hours on every sales opportunity.
The buyer participates three meetings with sales people and has ten internal meetings. Customer spends 20 hours in total as well.
Value adding time (the total time someone is working on the sales opportunity as oppose to waiting) is 40 hours (20 + 20). As the overall throughput time is 640 hours (4 months), the flow efficiency (value adding time / total throughput time) is below 10 %.
And sales people are working hard, putting in long days and you have reached a point of high capacity utilisation. Good for you, but the sales funnel does not flow any faster.
Efficiency paradox states that one has to choose between “resource optimisation” and “flow optimisation”.
Which one would you choose?
And do the metrics support your decision?