On April 14, Delphi P-MBA (Peer MBA) CEOs gathering explored the issues facing foreign leaders in Japan.
We were alerted to the challenge relating to sales in Japan by the president of a Western IT company.
He was frustrated with his sales team and gave the following reasons:
-he emphasized that this was a sales issue, not a marketing issue. In other words, he sells B2B technical software which is not bought out of love or passion, or for aesthetic reasons. His company is sales driven, not marketing driven.
-He feels his team is too quick to give discounts to the customer, rather than using his products to solve the customer’s problems.
-He feels his team does not prioritize the deals with greater revenue potential. They pay as much attention to small customers as to big customers.
-He feels his role as manager is too much like a policeman. In his experience, western sales people are dynamic self-starters determined to maximize their income. He does not find this in Japan.
-The lack of logic in the way his team approaches deals mucks up the forecasting, which gets him into trouble with HQ.
Around a succulent breakfast table at the Andaz Hotel on Thursday morning, we discussed 7 CEOs from a B2C company, an auto software company, a training company, a healthcare company, an audiovisual company and the agent of European country looking to attract Japanese investment.
What were the take-aways?
If you look at the flow of conversation, around 50% concentrated on the sales commission plan.
There was agreement on the following points, but different levels of execution.
-Individual incentives are very important. Some CEOs had high bonus components, others were more careful to maintain salaries on which their staff could live. But all agreed that, like Western salespeople, Japanese responded energetically to ways to make more money.
-sales plans have to be simple, fair and transparent. In some cases, a salesperson could check his income through a simple click.
-there should be as high a cap on maximum earnings as possible, or no cap. This varied from no cap, to a cap of 150% of the base.
-the bonus should come immediately, not quarterly. Instant financial gratification is a good incentive.
-A group component can make a positive difference. There is a group bias in Japan. When the group gets a big bonus, it lubricates social relations.
-incentives can be built into the sales process, not just for the final sale, and even independent of the final sale. Thus an apparel company is aware that the conversion rate of people trying on clothes is 80% compared to 7% who just enter the store. Rewarding staff for getting the person into the changing room makes sense. At some point the sale will follow.
-sales teams need training and supervision. Sales should not set targets itself. There should a leader with strategic input who chooses the direction in which the team goes.
The above points are simple. But it one CEO warned that actually executing on commission plans to be simple, fair and transparent could end up being very complicated due to the numerous people wishing to be credited with the sale.
True story: A team was failing to make revenue targets but checks revealed that team members were making the necessary effort in terms of meetings, phone calls, etc. The solution was greater input from the marketing team, who knew better how the product should be deployed, and coached the sales team. The problem was solved.
The role of the foreign manager could be to supplement the brute force approach of the sales team. The manager must ensure that he coaches his staff how to identify the levers which influence behaviour within a Japanese company. The procurement mechanism at a hospital is not simple. Being aware of yearly budgeting times is a simple and important place to start.
The foreign CEO could also be responsible for drawing up the right compensation plan.
Another debate was about the nature of the Japanese salesperson compared to a Western salesperson. This consensus was that local salespeople are excellent at nurturing relationships but poor at breaking new ground. How to change this, if at all?
One CEO said that they take recruitment and training of sales people very seriously. He uses a sophisticated personality test which he believes is effective. This CEO found it essential to increase the commission element from a “risible” 2% to something far more substantial.
Tip to HQ: Not neglecting small clients makes sense in Japan, as they may grow bigger, and repeat orders are important. They may also help consolidate your reputation. If you treat them badly, you may get a bad reputation. Start small, think big! A positive presence in the market is built on the accumulation of effort.
One CEO pointed out that salespeople are different “because the customers are different!” Japanese customers require a very high level of service from their suppliers, and this inevitably skews how the salesperson spends his time.
However, there was consensus that the balance went too much in the direction of nurturing relationships and that this may conceal laziness.
One solution (to the problem of how to create new sales) was increasing cold calling. One participant declared this was impossible and he had only got new business through personal introductions.
(One CEO noted one can use companies which specialize in cold calling on other companies’ behalf).
True story: One CEO had personal experience of making sales calls himself as a young vendor of foreign equipment. He was surprisingly successful asking the receptionist to speak to the person with a certain title in a certain unit. This required preparation. Once in front of the person, and if the person required help, it was an excellent start.
Once he became a CEO, he recruited energetic youngsters “who did not know better” to make sales call. Other members concurred that local pharma companies also use young people to harass hospital staff in the hope of making a sale.
One observation was that foreign MNCs are “too lenient” with their young Japanese staff and should make them do more cold calls.
Tip to HQ: the Japanese sales cycle is much longer than in the US/EU. What might take six months in the West, would take 12-18 months in Japan. Things move more slowly. There are more layers in Japanese companies, more discussions and more complicated approval processes.
There is also the issue of personal relationships which may go back many generations, and which makes a foreign supplier look like an untested “newbie”.
True Story: One CEO was ordered to reduce his sales cycle from 12 months to the more usual 4 months in other countries. This failed. However, he was able to push it down to 6 months in Japan.
One CEO said that maintaining relationships with Japanese companies is not easy because of the numerous job rotations that afflict Japanese executives. On the other hand, this is a good reason to make sure your salespeople check back with the company regularly. The new person may be more welcoming.
One CEO commented that the deeper issue is whether or not the sales team trusts the foreign CEO. Lack of trust can make overcoming internal opposition difficult.
True Story: it took one new CEO 14 months to convince his sales team that giving their product a lifetime guarantee would actually improve sales.
Retention is important, with one CEO saying that his sales people improve over time. It may take 3-4 years before they perform at their full potential. Due to the competitive labour market, he raises his commission even before they ask him. Another CEO regrets the day he did not have a one-on-one with a key player because he was too busy. Unfortunately, the key player departed soon after.
This CEO also calculated the real cost of sales people, not just the salaries he pays them. He uses a spreadsheet to calculate all their pension and entertainment expenses and creates easily-comparable ratios across the team.
Tip to HQ: Sacking the sales director when sales are not improving is not the solution. Rather, the whole process of how the company operates needs to be examined. HQ needs to listen to the country head and invest where necessary. A matrix structure often causes underperformance by removing the country manager’s freedom for manoeuvre.
A final comment was made regarding innovation. Innovation is everywhere in IT and Silicon Valley. But traditional companies need to start adopting some of these learnings and using them on their sales forces. Help them understand their customers, understand their problems and generate value-added solutions. Groveling to the customer rather than having a peer-to-peer discussion with him is not necessarily good service. As Japanese customers go global, they need good information and practical advice rather than “bowing and scraping”.
Tip to HQ: Doing sales in Japan is not like pushing a button on a sausage-making machine.