This post is the third in a seven-part series examining top trends that are reshaping the high-tech industry.
The tech industry, much like technology itself, is based on an equilibrium of constant change and innovation. While each year feels familiar, new technologies, competitors and evolving customer engagement requirements create an ever-changing set of challenges and opportunities for tech companies seeking sustainable and profitable sales growth. In response, tech companies continue to search for new routes to market and sources of growth through both organic and inorganic means. This has created a subtle but powerful restructuring of the tech industry over the last several years as companies bet on new sales strategies and modes of growth.
The industry has been brimming with M&A activity as companies try to adapt to this ever-changing landscape and customer demands. The Dell/EMC merger is a good recent example: Companies are merging in an attempt to improve their offerings in the face of declining demand for legacy offerings. And while the annual value of M&A activity grew dramatically—according to Deloitte, the total value of global M&A deals in 2015 reached more than $4 trillion, which is more than double that of 2009—it wasn’t the only cause of disruption and industry restructuring.
Tech companies facing a continuous and accelerating stream of technology innovation are also forced to review their business portfolios more frequently, and more carefully. For many, including leaders like IBM, HP, Symantec and eBay, this has led to divestiture as a way to refocus and invest in core businesses or shift investment to new areas as they search for new sources of growth.
With such dramatic industry restructuring, these organizations are placing big bets. Realizing the vision and expected value of those risks is absolutely critical. While the promise of creating synergies or a new focus on priorities is alluring, history suggests that a large majority of these bets will fail to deliver the promised value. In some cases, the moves may be ill-advised or the wrong strategic choice. Often the cause of these failures is in the execution. Even the brightest plans fail when management isn’t invested in the design and implementation of the company’s new sales organization.
Tech companies looking to cash in on their big bets need to focus on four key factors during a restructuring:
- Customers and partners: It’s easy to become distracted, demotivated or disconnected during a time of such significant change. While companies typically engage senior executives and top partners during transitions, they often fail to reach the majority of constituents being impacted by restructuring. This failure to engage during the transition challenges these critical relationships and injects significant risk into the new sales organization, just as it’s trying to achieve the desired results. Being focused on and oriented around customers and partners is an elementary concept in sales and marketing, but it’s too often overlooked during a critical juncture. Anticipated customer results can’t be a company’s only priority during sales force restructuring; the customers themselves need to be guided through the process.
- Revenue: Companies expend energy when focusing on cost cutting and efficiencies, typically at the expense of the revenue growth that’s critical to the promise of the new organization. Recent ZS analysis indicates that a 1% shortfall in targeted revenue growth would require a 28% increase in cost synergies to deliver an equivalent shareholder value. Conversely, exceeding targets by 3.5% can eliminate the reliance on cost synergies altogether. The real priority should be investing thoughtfully in integrated sales channels as a path to sustainably grow revenue (not reduce costs).
- People: In the uncertainty of a restructuring, there’s a risk of losing top sales and marketing talent, which can further challenge customer and partner relationships. Sales and marketing leaders need to aggressively manage this and identify tactics to retain top people, including those whose expertise and contribution aren’t directly tied to revenue. The new organization must convey a shared sense of mission, culture and teamwork so that these individuals can envision the benefits of restructuring and are motivated to stay with the company. This is most effective when the best practices of pre-merger organizations are retained.
- Beyond day one: During an integration or separation, there’s significant investment in pushing toward day one, and a relatively insignificant focus on the strategy and supporting infrastructure to drive growth in the quarters that follow. The consequence of this myopia is an organization that is ill-prepared to deliver on its promise in a sustained fashion. A better approach is to execute the integration to serve as the basis for long-term operations and focus executives to look beyond day one and potential synergies, ultimately leading the next wave of change in the market and driving organic growth.
During a restructuring, it’s critical that leadership is in full support of the process. This means ensuring that they have the bandwidth and expertise to keep the team productive, and the tools necessary to support and maintain existing customers and partners. While the odds are stacked against them and the work isn’t easy, companies should focus on these four areas of concentration to help them realize the vision, value and promise of the new organization that they’re building.
The more things change, the more they stay the same. In the tech industry, we see change as the only constant. Companies that focus on changing in the right ways will win big, while those whose changes are incomplete or poorly managed will leave empty-handed.
Currently, ZS is collecting insights from business leaders regarding the evolving nature of the sales organization. Please share your opinions in this brief survey regarding emerging sales trends as well as your teams’ capabilities and performances.