CATALYST INDIA

Management Consulting Services – Capability building for growth

+91 6362230434      info@catalystindia.in

Strategies to re-engineer and grow your trading business

Trading companies are the most widespread form of businesses and act as channels for manufactures to reach into far flung markets. Trading companies are complex organizations that have their own culture, diverse functions and customer relationships. They can range from small entrepreneurial set ups to professional companies with focus, and there could be large global trading companies like the Japanese sogososhas. In India, despite trading being controlled by business communities, as the size has grown, these companies have structures like any other companies, and have lost the spirit of their founders. Some thrive and grow, while others just get by. This article brings to focus the common challenges among trading companies, and key drivers that differentiate the good companies from the average ones.

With offices in multiple locations, warehouses, strong logistics capabilities, back offices and a very strong finance (especially since they survive on wafer thin margins), there is a high premium on efficiency and response. Managing and owning the relationships with buyers and sellers is a core function for any trading company.

The function of engaging customers

Sales and business development teams build & own relations on the customer front. This is the core asset and a competence that will enable revenue growth. Many trading companies treat this function casually. They hire sales reps mainly for the contacts they bring along. Despite initial success, such reps tend to underperform or leave after a period. There is no professional sales engine that will systematically acquire & build a new customer base. Even among the large firms, most of the reps work as individuals. There is no organizational backing. Even for large million dollar projects, there is rarely an organization backing for the rep in terms of the sales strategy and required intelligence to convince the customer.  For a group of companies that are solely dependent on being sales driven, poor sales structuring is surprising. Some of the more successful companies appoint the sales rep as a one point contact to the customer. All matters regarding product, delivery schedule, status, import clearances, after sales support  are handled by the sales rep. Customers cannot be expected to be calling sales, despatch clerk, logistics clerk, and CEO of the trading company to have problems addressed. Servicing customers and making procurement easy for them should be the motto of great trading firms.

Sales has to be aligned to the products, markets and strategy of the firm. Sales objectives need to be set in terms of targets for brands, product lines, new customer addition, cross selling to existing customers, market coverage etc. When these targets get aligned with company strategy, all sales activity and processes will follow suit. Then it is matter of implementing the right processes, metrics and reviewing for success.

Reaching out to customers

Even among firms whose revenues run close to a hundred billion dollars, marketing is quite rudimentary. They have not been found to be regularly reaching out to customers to inform them about the wide range of available products. Suppliers of top brands and products can usually provide a lot of thought leadership material. Content therefore need not be generated from scratch. Informing markets about these products regularly, and positioning the trading services on top of customer minds is a rhythm that needs to be implemented diligently. Trading companies have also not been found to be regularly doing dip sticks on changing customer preferences. Their customer insight, understanding of preferences and trends is usually poor. It is only after sales collapses, that the product line is shelved and perhaps another added without sufficient analysis. Hence Sales and Marketing are two areas that trading firms can strengthen and drive strategically to move to a position of strength.

Manage your suppliers

The other major strength of a trading company is supplier relationships. In areas like plastics, chemicals, high end branded products and precision machinery, only a few countries have strong manufacturing capabilities, and  manufacturers rarely bother to serve all markets. They prefer to focus on their core areas. Most economies however still need these products and it is only through the trading company that such products can be obtained in the required quantities. If the trading company is not strong with supplier relationships, customers do not get served. Larger companies have teams in their home countries who build strong supplier relationships. They are almost like an extension of the suppliers’ sales team. The level of integration and relationship is very high. But mid size and smaller companies are more transaction oriented, and do not invest in this area.  In many mid to large trading companies, a relationship is struck between the CEO and the supplier and they start to represent the supplier in the market. However, managing supplier relationship goes far beyond top level friendship. The trader needs to build a working relation with sales, marketing, operations and despatch departments of the supplier. This needs a deep integration of systems, constant access to information and ability to work as a team across two companies. Companies make the mistake of relegating this function to a logistics or procurement manager, who is mainly concerned with a particular consignment but not the relationship as a whole. It’s only when relationships are mapped and kept warm that there is effectiveness on the supply side. This is crucial since delivery times, immediate despatch from stock etc are committed and executed only for preferred buyers. For a trading firm to retain and build loyal customers this becomes important. Japanese trading companies typically have very strong relations with suppliers. They invest in suppliers sometimes, and have dedicated teams managing these relationships. When number of suppliers or brands grow, implementing a structure and a robust process to manage suppliers is crucial.

Managing logistics

Logistics, shipping and trading are synonymous. Singapore grew as an efficient trading hub because of the sophistication of logistics. An effective logistics function involves the ability to analyze and predict the total supply chain costs from the source of supply to its final point of distribution. Gone are the days when this was calculated by the venerable shipping clerk. Modern trading companies have people trained in management accounting and have an ability to calculate costs for various options and have alternate options to fall back upon. They manage risk and delight the customer. They are adept at calculating both international and domestic logistics costs by product and delivery route, accurately calculate all the applicable duties, tariffs, and other customs-related costs while factoring in any preferential trade agreements. More advanced capabilities would include the ability to model and estimate inventory levels and total carrying costs. Stocks need to be maintained close to the market to make immediate deliveries for breakages, replacements etc. The ability to analyze past data, calculate a minimum order quantity for stock and be data driven is necessary. However, most trading companies have junior staff with no experience handling such a critical function. They are unable to answer even basic questions like – Where is it? When will it arrive? Is the expected date different from the planned date? They have no visibility. They are not improving sourcing time and delivery times. No one works on process improvement. They are not constantly finding ways to improve landed costs. All of these need to be looked into and worked upon. It is continuous improvement. When employees are trained, and skills to manage the global supply chain are imbibed, growth will be easy and scalable.

Strategic planning

On the product front, most trading companies grow organically adding new lines and suppliers arbitrarily. They do not have a coherent strategy in choosing products and markets based on predictability, profitability, sustainability and risk. Supplier, brand and product strategy has to be analysed and planned carefully. How many brands could be carried in the portfolio without creating confusion? How many product varieties can be carried?  When a full range of products need to be offered to the customer, is there an ability within the organization to integrate the offering from various suppliers and co-ordinate? Line extensions, brand extensions, multi-brands and new brands are strategic choices that need to be made. Should relations with suppliers be exclusive or non-exclusive?

In the area of product or service itself, most offer the core product as they receive it from the supplier merely acting as agents. But there could be opportunities to provide value added services, like special prices, soft loans, credit period, service and support, consulting, system integration, etc., that will lead to an augmented product and hence immense value addition. Support is another area that companies can create structures and processes to excel, thus keeping customers delighted, and thereby helping build and position the brand of the trading company. Once strategic orientation is set, it should translate into a list of activities that are easily executable by all functions within the organization.

Invest in Technology

Modern IT systems provide real time data, visibility into status of orders, shipments, stocks, sales etc. An effective CRM system helps manage customers, pipeline and the geographically spread out sales team effectively. It helps review existing opportunities, and allows insights into sales and marketing activities. With a good ERP, stocks across warehouses can be instantly viewed, optimum reorder levels can be set, the minimum order quantities can be calculated and synchronised with Demand patterns. Profitability of shipments can be calculated accurately. This helps in fixing the right discount levels, and in customer negotiation. Integrate the systems with suppliers and study their supply patterns, and get visibility into status of shipments, take corrective action, and keep customers happy and loyal. Technology products be it a CRM, an ERP or any lightweight cloud based product, help fast track the trading business, and should be used effectively.

People

Most trading firms are an aggregation of a diverse set of people with no belongingness to the organization. The HR functions in small and midsize trading companies are very rudimentary, and rarely are employees engaged effectively. Since the underlying culture of the trading firm is one that works on commission, the thinking is that while employees are being paid, nothing should matter.  Human beings are diverse, and there cannot be one incentive plan for all. Most trading firms use a straight line commission payout curve for sales people, and worse, they cap the commissions. To encourage overachievement, there is need to relook at commissions, and perhaps ratchet up the percentages for higher sales targets. An appropriate mix of fixed and variable salary can be designed based on whether it is a commodity business that is more predictable, or a project business that is longer term in nature. While commissions can motivate sales reps, there also need to be bonuses based on firm performance to motivate other staff, so that everyone partakes in the firm’s success and work as a team. Trading firms are as complex as any other type of organizations, and investments have to be made to build effective Performance Measurement Systems that align the performance with the objectives of the company. Training is another important aspect. While product training is a must for all employees and especially so for sales, there needs to be leadership training that enables them to learn not just about the products, but also about competition, the market, suppliers etc. Training should enable them to plan how to be more effective in interacting customers and suppliers. Right Training coupled with the right incentives, will certainly unleash the potential in any organization.

It is not too difficult to build a world class trading organization that can be self sustaining, once the foundation blocks are strong. Most trading organizations are short term oriented. But once they realize their strengths, and elevate themselves to see the forest, rather than the trees, there is clarity in direction. Emphasis needs to be on organization development and implementing best practices, so that the business becomes predictable and sustainable. Unrelenting focus on customers and suppliers coupled with strong internal capabilities will bring in the much needed performance advantage and unleash growth.

The future of our work life

Articles going around on Amazon’s work culture talk about companies (including many start-ups) envisioning a new workplace which is fluid but tough, with employees staying for only a short time (meaning temporary) and employers demanding the maximum. Many are places where blue collar workers work in difficult physical conditions, while white collar workers feel driven hard, but get no empathy from their employer. A request for leave to care for a loved one who has fallen ill or a need to celebrate a joyful occasion with family is often met with rebuttal by the employer. But there has also been lot of talk about other companies being Great places to work (GPTW), where there is empathy, encouragement for employees to follow their interests and deliver their creative best. But these are perhaps rare, and when we talk about top 100 great places to work, there perhaps isn’t a 101st.

With everyone grappling on what should be the best model for work, there are economic realities businesses have to cope with, and not all are endowed to create a GPTW. Very few companies can even afford to employ world-class talent every day of the year – let alone attract this high level of talent in the first place. Quarterly pressures and the harsh economy do not help either. Huge amounts of money are being pumped into unsustainable businesses. So, these businesses really need their employees to perform or perish. They need talent to scale really fast. But they don’t need them permanently. There is always the harsh need at the other end of the spectrum to cut costs. Businesses want to hire lower cost junior talent and get them to scale up using technology effectively. So, is it the world is changing so fast and so out of control, that no one needs thinkers and planners, but only doers who can execute at a frenetic pace, until that magic critical size is reached from when on they can plan to become a well managed corporation? Or perhaps they don’t want senior execs sitting around and debating long range planning while the carpet has shifted from under their feet. The CEO of a tech start up who got funding and is in the process of scaling, told me that he expects people in their 30s to do what senior execs in their 50s used to do. He wanted consultants to come in and help him scale up and enable his people to manage complexity by putting in place robust systems. This means that companies do really need that high end talent, and cannot do away with it. So does it mean senior executives have priced themselves out of the market? or are they perceived to be in the old world and not quick on their feet? So, in a way expectation from senior executives has changed. What seems to be required is highly skilled talent or specialists and not just experience. Because experience can be one year repeated 30 times. In fact there has been lot of talk since quite some time in advanced economies about re skilling and moving up the value chain. With trends in the software industry – one of the largest employers of educated white collar workers showing signs of a move towards automation and reduced employment, and other industries laying emphasis on capital and productivity, it’s time for all to give it more thought.

Since the nature of jobs has surely changed, and will never be the same again, this group of highly skilled talent needs to figure out how best to fit into the changing workplace, there are expectations on work life balance, a family friendly schedule and preference for work that is liked. Online platforms are also allowing certain categories of skilled talent to move on to become independent contractors, and this trend is on the rise especially in more sophisticated economies, since certain skill sets are valued and paid for. The model of freelancing and independent contractors is not new though, and has been in vogue in the film industry for a long while. But it is not prevalent among white collar workers who have mostly got used to the comfort zone provided by large corporations in the short span of a few decades. Even in agriculture, large masses work only during certain seasons and find other odd jobs at other times. As specialists and high end talent become more like entrepreneurs providing specialist services, the lower marginal costs of delivery will enable them to offer their specialization to smaller and medium sized companies. Their ability to specialize will help them deliver quality services quickly. They will be able to take more than one assignment thus giving them flexibility in earnings upside.

But then how do we all become entrepreneurs ? transform ourselves ? How do we take control of our life ? and succeed in the most important thing which is to lead a , successful and happy life – not success as defined by material living standard, but rather the quality of life. Reminds me of the S-curve in management. Growth stalls as we plateau on the S curve. One has a choice of stagnating, suffering and falling off the curve, or transforming oneself, experiencing some disruption, but then making the jump to the next S curve for perhaps the next few years if we are lucky.

This really needs constant learning…lifelong, if not it seems to be game over for specialists. Actually we are all work in progress – a permanent beta. The 18 to 20 years of initial learning we go through in early life is just not enough to sustain us for four decades in the ever changing business world. My own work span has seen me through from making reports in triplicates using carbon paper to wordstar and dot matrix printers, foxpro, telex and then finally email – common shared terminals at first before we all got our own laptops. Now we seem to have apps & SMAC and reminders for everything to such an extent that top management seems to believe the dashboard more than the individual. The outcome is important. It does not matter where we are. Companies are taking employee attendance through twitter. Large institutions are having hordes of people working for them using whats app as an effective medium of sharing. In a sense, we have learnt a lot in the past two decades about coping with the change, we have adapted technology in work. While this technology enables corporations to automate, be more productive, and work with remote staff etc., it also allows talented specialists to leverage technology and deliver their services through alternate mediums. It allows specialists to collaborate, learn and stretch the envelope as never before. It can give them space to think and create – something they would never enjoy as 9 to 5 employees of a corporation.  It allows them to think creatively and strategically rather than being transactional. Becoming entrepreneurial does not necessarily starting a business, but it is a way of life, a way of doing what we like the most and allowing everyone to benefit from it.

Companies like Uber are scaling very fast hiring independent contractors for fulfilling the service. Their costs are significantly lower since they offer no significant benefits to the hoards of independent contractors who serve with their time and own assets. But still, it is a move away from the employer-employee model, and is a trend towards removing many barriers of hiring talent, building scale, governance etc. It is a move away from high cost inflexible employment towards usage of specialist skills. It is allowing many people to make a living as taxi drivers according to their preference and personal schedules. Airbnb also uses a model where entrepreneurs come with their asset and make some extra income whenever convenient to them.  There are platforms for freelancing content writers, artists, accountants and lawyers to offer their services and get rated by users of their service. While there are no formal platforms for everyone, the market for intellect does seem to be evolving and perhaps in the near future we could see an efficient platform akin to a stock market for buying and selling of skills. The day is not too far when firms can find the talent they require and specialists can find the work they love.

Tuning the Sales engine

Many a times, the sales of a firm  starts off from the founder’s personal contacts and then expands into newer territories. As firms grow and expand, there is  need to diversify and derisk customer base, both in terms of revenue from a particular segment and percentage of contribution from a the top few customers. However, most companies find this desired state alluding, for many reasons. Sales structure, team reporting, carving of markets and sales measurements are the major roadblocks that hold back the company’s sales achievement. Many firms do not get the required ROI despite hiring more direct sales people, training them, and arming them with heavy technology & gadgets.

How do you get your sales engine firing and deliver the expected results? Start with the basics of your sales strategy, what is the product or service, what would be the best channel to sell, is push or pull the right approach, commercial policies etc. Once your sales strategy is clear, evaluate the structure to see whether it is aligned to deliver the results. Do not just follow the herd by putting more direct costly sales resources, often a good combination of low cost back end and high touch direct sales force is not only useful but cost effective.  Identify systems that cane be deployed without much hoopla!. You do not need Bazooka’s to kill a fly. Do not buy overkill sales systems if you can keep your process simple and stupid.  Importantly, your systems must be able to allocate activities to resources, make them own and drive outcomes. Systems that require less monitoring and less control always work best. Keep away the bureaucratic multi-report systems, they are just too much of file pushing, but no juice at the end of tunnel.

The size and structure of the sales team is also important. The right account and territory assignments, the type of sales resources that you have, their effectiveness, the number of each type of resource, coverage of territory are issues to be kept in mind here.  Most companies make a cardinal mistake of allocating geographic regions interspersed with named accounts. This is a classical “falling between two stools” folly that one must avoid. Follow a simple principle – either geographic or account wise dedication, and stick to it for some time. Intelligent sales managers often rotate sales resources between the geographies to break the monotony and avoid the “familiarity breeds contempt” effect.

Most crucial, but often got wrong, is the issue of talent. Account mining is different from opening, hence characteristics of KAM is different from hunter. Having the right mix of hunters and harvesters is key to effective sales management.  Recruitment and selection of the right candidates, putting in place appropriate development and training plans for their sustained success is also a key component. There also has to be clarity on the sales culture that one needs to build and strengthen. If you want to create a group of interdependent collaborative sales teams, ensure the mining and acquisitions teams appreciate this aspect and are culturally attuned to this joint outcomes. Do not fall into the trap of aligning culture using incentives, it seldom works, especially in sales.  When high standards, clarity, transparency, teamwork and commitment are part of the culture and are followed diligently and imbibed in our systems, success is closer then imagined.

Finally sales can be only effective if it is fortified as a continuous and learning system. Systems to gather competitive intelligence, sales support, performance management, rewards & recognition and IT systems such as CRM, KM, BI etc., are all typical support systems that need to be aligned. Hence, building a high performance sales organization is not just about hiring more sales people, or using technology. It is about putting in place all the inter-dependant components in the system that will fire in unison. While the above list is by no means exhaustive, they are just some of the inter-dependencies that need to be built and aligned to have a reliable, consistent and effective sales organization.

Need for B2B branding

Is branding required in the B2B context?

In the B2C context companies like Coca-cola and Pepsi persuaded consumers that sugar water with some acids and colouring was better than water, and the in-thing to keep sipping all the time. If branding worked for them, it must surely have relevance in the B2B context as well. At the same time, surveys have shown that most industrial brands are just labels and do not really have strong correlation with the qualitative attributes of the product.

What does business branding need to achieve?

Studies show that Business buyers are not necessarily value driven. They are individuals in decision making units who want to reduce risk and simplify evaluation by going in for brands they resonate with. B2B decisions entail personal risk to the decision maker. If things go wrong, their credentials in the company are at stake, and they could even suffer job loss. Hence a B2B brand not only needs to demonstrate business value, but also personal values. Hence the marketing message must have a rational as well as an emotive appeal. In fact, very few industrial buyers will change suppliers for small price differences. They would rather buy peace of mind. They may rationalize externally, quoting price, performance and features as important. But if we dig deep, they are actually buying trust, comfort. For example, when a business signs up with let’s say, Taj Group of hotels, the decision makers in the administration department are confident that senior executives of their firm will be well taken care of at the hotel, and would have no reason to complain.

Brands help as a means of communication of benefits and value

They help to set expectation on the product or service. Perceived quality of a branded product is higher than an unbranded product. In the B2B context, a brand achieves greater information efficiency and risk reduction, while in the B2C context there may be more of image value benefits.

Two frameworks for a holistic approach to branding

Internal Alignment

However, B2B Branding approach needs to be holistic. There are two broad principles B2B must adhere to. First is internal alignment. Internal branding is important, since all employees of the company need to speak the same lingo to the customer, so that the message the customers gets are unified and strengthens the brand. It has to message the right values to the customer as well as incorporate similar values within the organization, so that the internal systems are really in sync with the brand value. It should not be the norm that the brand conveys a German solidity and robustness, but the production system reeks of poor quality and shoddy work, while the procurement division is going around shopping for the cheapest input components. The spirit of the brand has to come across all functions in an organization and very importantly in marketing and sales functions. Consistent and effective marketing to build the brand on functional (like features, benefits), economic (price, time etc) and emotional parameters (like trust, peace of mind, solidity) must happen.

Customer Focus

Second is customer focus. Often companies talk past their customers, and there is divergence between the core messages companies communicate and the brand characteristics that customers value the most. While companies may project a social responsibility angle, customers may be valuing efficiency or reliability. When customer focus is not central to brand building and marketing, marketing teams tend to get carried away over time, and start to project the wrong messages and confuse customers. Hence a disciplined communication of values and messages is important. The content that we create and the thought leadership that we intend to project must be something the customer really values.

Small efforts lead to large long-term benefits

When industrial companies benefit from business to business branding, it is often by accident rather than design. However, with a little extra effort and cost, the effect could be much improved loyalty, greater profitability and higher valuation of the firm. Finally, the most successful B2B brands have always kept it simple and stupid.

Aligning sales & marketing

Most companies in traditional industries during the formative years typically have marketing and sales managed by a single department. On the marketing front, companies usually make rudimentary investments as part of sales efforts. They at best participate in related industry events or advertise in local media. However, as organizations grow, the need to manage marketing and sales as independent and yet complementary functions becomes necessary. In our observation, most companies run into the puddle of creating silos with no tight alignment between marketing and sales departments. In some companies the lack of synergy permeates product development and delivery functions also. The result is that product development does not use marketing to get market inputs, marketing does not use sales as their antennae in the market, and sales does not use marketing to drive a marketing led sales approach to grow revenues. The need of the hour is for greater co ordination between the two functions to succeed in the highly competitive and uncertain environment. Integration is ensuring the team coordinate and complement each other as in a relay rather than a 100 meters dash.

Mechanisms to integrate: Sales and marketing need to be consistent, congruent (same goals, support each other) and co-ordinated (event plans, time promos, content marketing with sales visits). Some mechanisms in Process, Structure, people and Goals can be used by managements to achieve integration.

Processes is all about ensuring communication flow is seamless, no information hoarding happens and internal latency is nil. Process is to ensure the owner has the complete info and authority to drive the outcomes and outputs. that are well designed and implemented are most useful. Process are effective only when the actors are embedded deeply. Defining a process for marketing where certain inputs are mandated to be obtained from sales, and outputs shared with sales can help to tie down integration and embed this in the process itself. Same thing can go for sales, where they seek marketing inputs into presentations, collateral required, target customers etc. Defining a detailed process with inputs, outputs, metrics and persons responsible is very useful.CRM systems can be used to achieve a degree of integration between sales and marketing, especially when it comes to co-ordinating marketing campaigns, lead management, getting information through call reports from sales etc. Marketing and sales have different customer experiences and information. The experience a sales person has with the customer can be very different from the experience a marketing person would have in interacting with customers. Somewhere these need to be woven together to build the real picture. When integrated with an effective CRM to provide one view, it becomes a powerful tool for insight and effective actionrelay.

Structure can be used to integrate sales and marketing. Having a common Head of Sales and marketing will allow effective integration.  In large companies, cross functional teams tasked with joint activities across sales and marketing will be useful. They will be driven, there will be ownership and it will be effective.  Though. At times, it could be slow due to consensus issues and expensive as well, due to the redundancies built in. The new trend is for companies to have Integrators or SDR (Sales Development Reps) who act as co-ordinators between sales and marketing. This can be an effective low cost structure, But the KPIs of the SDR, sales and marketing folks need to be tied down to common objectives.

People aspect needs attention as well. When the culture in the organization is such that people have too much affinity for functional areas, and there are interdepartmental politics and fights, integration is not easy, and one knows for sure that this needs to be ironed out. The level and experience of people at the boundary units (like sales) makes a big difference and determines structure, process maturity, etc. When sales persons are mature and experienced, companies can work with loose processes, informality and uncertainty. But when we have in experienced and junior teams, and there is churn, systems have to be robust to help the organization withstand the confusion at the boundaries. This is a call leaders need to take – if the role is critical and processes weak, then place mature people in such roles. Co location of product development, marketing and sales is good, especially for large dispersed companies. It builds affinity and cohesion, but there could also be some trade-offs here. On the cultural front, facilitating Informal social ties, having an open environment, being job oriented rather than individual oriented, being result oriented rather than process oriented, are issues that need attention and tweaking.

Goals Integrated: In many organizations the adage “what you measure gets done” is the norm. Companies can use common objectives and goals to tie up complementary functions. Marketing and sales responsibilities can be designed around the customer buying processthe steps that the customer goes through – some call this the revenue cycle and not the sales cycle. Hence how do marketing and sales together funnel leads through awareness, interest, consideration, intent, evaluation and purchase is the key. Earlier, only the TOFU (top of the Funnel) activities qualified as marketing and the rest was sales. But as consumers research &educate themselves, 75% of buying decisions are made even before the sale begins. Hence marketing now extends all the way to the bottom of the funnel as well. Marketing is becoming more about content while sales is more about expertise, and these need to be well knit. Incentive design and linking good performance management systems are keys to get teams to work together. A lot of attention needs to be paid here, but companies are typically weak in this area, and a schism in inter-functional coordination always exists. Job rotation programs also help in getting sales and marketing folk to appreciate the challenges on either side and enable them to work well as teams.

When the above systemic, structural, cultural/people, and goal oriented issues are analysed and designed to be integrative in nature, high levels of sales and marketing integration can be achieved, leading to substantial performance improvement.