Industrial Marketing: Managing New Requirements

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An industrial products firm recently held a meeting for senior managers to discuss marketing strategy and implementation. An outside facilitator, who led a discussion about improving marketing effectiveness, encouraged participants to list the key issues facing the firm. The blackboard in the meeting room was soon filled with two lists:

Salespeople say:

  • “Marketing people do not spend enough time in the field. They don’t take specific customer complaints seriously enough. Marketing needs to establish a system for better field communications.”
  • “Marketing should be more demanding with R&D and manufacturing to alter product designs and production schedules.”
  • “Biggest frustration to our sales reps is lack of timely information.”
  • “Sales reps’ compensation should not be penalized for price erosion. . . . That’s a product issue out of our control.”

Marketing people say:

  • “Salespeople are always asking for information that they have already received. We spend much effort gathering and writing up product and competitive information, send out that information, and reps call a week later for the same information. . . . This takes time away from other important tasks we have.”
  • “We are underresourced: too many chiefs and not enough implementation people.”
  • “Our success depends on fulfilling customer expectations for tomorrow, not just today.”
  • “Sales is happy to criticize, rather than accept responsibility and suggest constructive improvements.”

These comments reflect the changing tasks these managers face. Salespeople in this firm need more information, more often, from more marketing managers, as sales tasks involve more customized product-service packages at accounts. Conversely, marketing’s complaints about “too many chiefs and not enough implementation people” reflect a situation in which product managers must work with more functional areas (and especially with field sales and service), even as cost-reduction pressures shrink staff support resources. Also, while sales generates more customized orders and complains about marketing’s seeming inability to alter product designs and production schedules, marketing managers respond that “our company now has highly automated manufacturing operations, making design and other product changes a complex process.” Hence, marketing rightly evaluates these requests with more than sales’ often account-specific specifications in mind.

Especially for industrial firms, these interactions can be costly. Studies indicate that as many as one-half of new industrial products fail to meet business goals and consistently point to the management of the product launch — and, in particular, the hand-off from product management to sales and service groups — as key to new product success or failure.1 But little effort has been made to identify the dimensions of required coordination among these marketing groups, organizational factors that affect their interactions, or how managers can usefully diagnose relevant options.

This article focuses on the interface between sales and service, and especially between sales and product management. Based on research at computer, telecommunications, and medical equipment firms (see the Appendix for details of the study), it first discusses why managing It then outlines typical interdependencies and organizational barriers that affect the planning and execution of these activities. It concludes by evaluating the strengths and vulnerabilities of initiatives aimed at improving links between the marketing groups.

New Marketing Requirements

Factors affecting the marketing units include changes in what many industrial firms sell (the nature of the product offering), to whom they sell it (market fragmentation), how they sell it (supply chain management requirements), and under what product life-cycle conditions they sell it.

Nature of the Product Offering

Industrial marketing programs increasingly involve a combination of tangible products, service support, and ongoing information services both before and after the sale.2 Development and execution of such programs require the participation of the various marketing groups responsible for managing product, service, and actual sale.

A salient example is “systems integration” in the computer business. Many computer vendors are positioning themselves as a single point of contact for integrated systems, with the vendor (often with third parties) providing a combination of hardware, software, training, and other services tailored to the customer’s business goals. In effect, the seller acts as a general contractor in managing system design, installation, maintenance, and, in some cases, ongoing operation of installed systems. The seller’s offering to customers is ultimately the ability to coordinate its own product, sales, and service activities smoothly. One executive noted, “The real product is our company itself, and most of my job is to act as an information broker: I try to make my company transparent to the customer and the customer’s requirements transparent to relevant product and service units in my company.”

Similar requirements now face firms in many industrial markets. At medical equipment firms, group purchasing arrangements among hospitals have increased buyers’ knowledge of terms and conditions among potential suppliers. An executive explained how this affected suppliers’ marketing programs:

Basic services in our business now include on-time delivery, damage-free goods, and efficient order-inquiry routines. Value-added services in our business include custom-designed product labeling, customized quality programs, dedicated order-entry specialists, extended warranty plans, and new services in areas such as waste management and safety programs. Value-added services build the relationship and sustain our pricing structure; and we’ve found that cost-effective development and provision of these services require a multifunctional approach among product, sales, and service personnel in different divisions.

For the customer, these services are growing portions of the value added by a supplier. For the supplier, closer product-sales-service linkages are more important as its offer in the marketplace becomes a changing product-service-information mix that must reflect more segmented opportunities.

Market Fragmentation

Phrases like “micro-marketing” and “mass customization” have become perhaps too familiar in recent years. Managers risk losing sight of what is competitively distinctive about these developments versus what is fundamentally old wine in new bottles.

What is not new is the fact of customer differences and niche marketing. Industrial product applications have long been tailored to various customer groups that employ the same core product for different uses. What is new is the extent and necessity of such segmentation due to the tools now available for tracking differences in many markets. Commercial customers are more diverse in terms of vertical applications and geography, yet more able (via their internal information systems) to coordinate purchasing requirements across heretofore separate buying centers. Conversely, the sellers’ information search costs associated with locating these differences are also lower and, in many product categories, worth more to the industrial marketer in a slow-growth economy.

A manager at a telecommunications firm noted, “We can no longer target broad industry categories for our products. Value and profits no longer reside, for example, in ‘financial service’ applications, but in more specific products aimed at commercial banks versus brokerage firms versus community financial institutions.” Similarly, a computer executive described a market evolution common to many other industrial businesses:

Twenty years ago, we provided the hardware and the specifications for a broad application, and the customer’s MIS department provided the specific solution. But, over the past two decades, the industry has grown and fragmented. At each stage of the value chain, specialists have arisen, while buying is more influenced by end users at accounts. Segmentation becomes more important.

In responding to more diverse segments, product variety often expands significantly. Most of the firms I studied increased the number of items they assigned to product managers by 50 percent or more during the past decade — findings in keeping with studies of product variety in other industrial markets.3 This affects sales and service requirements as well as the need for links among product, sales, and service groups. Managers noted headquarters’ difficulty in responding to market fragmentation on a centralized basis. Field sales and service personnel are often better informed about customer requirements (and an account’s willingness to pay for an application or line extension) than upper management or headquarters product managers can be. But field personnel, responding to local conditions, are often less able to ensure scale economies or consistency in company dealings across segments. One executive commented, “Our central marketing issue is simply stated and difficult to manage: we need to decentralize and empower lower levels in the organization, while maintaining a coordinated customer interface.”

Supply Chain Management

Competitive bidding has historically dominated buyer-seller negotiations for many industrial products. The buyer’s primary objective was to minimize nominal price by working with a large vendor base (to ensure supply continuity and increase buyer power), making frequent shifts in the amount of business it gives to each supplier (to limit supplier power and signal “discipline”), and conducting arm’s-length, transaction-oriented negotiations through annual contract renewals and rebidding.4 But total quality concepts focus on ways to reduce reject rates, improve cycle times, and decrease inventory throughout the supply chain. From this perspective, the cost and time for monitoring many suppliers of a product —largely “hidden” costs in the competitive bidding model — become visible and significant, while the means for improving information and product flows along the supply chain often motivate closer relations with fewer supply sources. Major industrial customers such as Allied-Signal, Ford, GM, Motorola, Texas Instruments, and Xerox have cut the number of suppliers they use by 20 percent to 90 percent during the past decade and have demanded new supply-chain arrangements from those they continue to do business with.5

One goal is to optimize the total cost in use of doing business with a vendor. Customers’ cost-in-use components fall into three groups (see Table 1). Supply chain initiatives seek to lower these costs and increase the vendor’s ability to develop and sustain value-based pricing policies that reflect total system benefits for customers. Implementation of this concept affects companies in at least two ways. First, this sales strategy emphasizes customizing product mix, delivery, handling, and other supply-chain activities to customers’ operating characteristics. This increases the required interactions between the vendor’s product and sales personnel.

Second, this approach requires closer coordination of sales and service, since important account management tasks involve just-in-time delivery, special field-engineering resources, and order-fulfillment factors that service units often execute. For example, a service executive explained how this approach places more pressure on the accuracy of sales forecasts, “Inaccurate forecasts mean greater transportation, warehousing, and inventory carrying costs. So it makes sense that we be involved in administering the forecasts. I don’t think of them as forecasts any-more; it’s a management planning tool.” Further, key elements of service in industrial markets often vary by type of customer and, for a customer, across different phases of the order cycle and account relationship.6 Understanding these differences and activating relevant alignments along the vendor’s supply chain become part of the selling process. This places more emphasis on product-sales-service coordination in order to design products with supply-chain requirements in mind.

Product Life Cycles

As in many other markets, product life cycles at the companies I examined had shortened in recent years.7 A computer executive commented, “Until the 1980s, our business was like the old automobile business — five-year model changes. Product management utilized these time horizons and then performed basic market research, did relevant financial projections, and worked to get other functions to buy into a product plan. [But] market changes make the results obsolete way before the end date.” At telecommunications firms, deregulation and merging of voice and data technologies have had a similar impact on product life cycles, while hospital cost-control legislation and new safety concerns have accelerated life cycles for medical products.

These developments have made the notion of “time-based competition” common in the management literature of the 1990s, which emphasizes faster product development and linked manufacturing-distribution systems. But there has been little attention paid to the impact on downstream marketing activities, where responsibility for the customer’s implementation of these initiatives still resides. One computer firm decreased product development cycles by 67 percent between 1986 and 1990. But for the salespeople, the new products meant learning new technologies, establishing relationships with different decision makers in reseller and end-user organizations, confronting different buying processes, seeking more information and support from product managers and service personnel — in short, developing new ways of marketing that were perceived as “alien” to traditional revenue-generation routines. The firm eventually realized that there is limited utility in shortening product-development cycles and investing millions in flexible manufacturing if the firm’s marketing system cannot handle or (as in some companies) actively resists a greater variety of products, services, and segments.

Hence, even as other factors increase the amount of required coordination among these marketing groups, shorter product life cycles decrease the time available for establishing and assimilating the relevant coordination mechanisms.

Market Requirements and Marketing Interdependencies

Market changes require changes in marketing programs. But without understanding the issues that traditional organizational alignments generate, change is less likely to be purposeful. Figure 1 indicates tasks often associated with product, sales, and customer service groups at industrial firms. Where the responsibility for each task resides varies among companies. Together, however, these groups are responsible for tasks that move from market and competitive analysis, through the activities associated with the marketing mix (product policy, pricing, promotion, and distribution), to the provision of pre- and post-sale services. As Figure 1 suggests, these tasks are best viewed as a continuum of activities where one unit has primary responsibility for tasks whose achievement is affected by another group’s plans and actions.

Inherent in this alignment is the interlinked nature of their responsibilities. Figure 2 emphasizes the mutual dependencies and information flows. The product, market, supply chain, and life cycle factors discussed above make the timely exchange of this information more complex and more crucial for marketing effectiveness. But most industrial firms differentiate these activities so that expertise in (and accountability for) some subset of the continuum outlined in Figure 1 can be developed and maintained. In the firms I studied (as at other industrial firms), product managers’ core responsibilities included creating strategies, developing plans, and managing budgets and programs for one or more of the firm’s products.8 Field sales was responsible, in varying proportions, for five types of activities: contacting customers directly, working with orders, working with resellers, servicing the product and/or account, and managing information to and from the seller and buyer. Customer service personnel were involved in pre- and post-sale activities that affected product programs and sales tasks (e.g., product demonstrations, installation, customer training, field repair, and inventory management services).

What issues affect the daily give-and-take between marketing groups with more interdependencies yet distinct roles in customer-contact efforts? My research indicates that three factors are especially important: (1) the layering of priorities that characterizes each group’s hierarchy of attention; (2) measurement systems that help to enforce these priorities; and (3) information flows that affect the data each unit tracks, the role of the data, and the measurements that influence each unit’s priorities.

Hierarchies of Attention

The marketing units differed in their priorities and the resource allocation patterns that flowed from these priorities. These are differences in their “hierarchy of attention” — i.e., what each group takes for granted as part of its daily work versus what it considers as nice to have or discretionary in its allocation of attention and effort.9 In particular, product management’s focus on its assigned products often clashes with sales’ and service’s responsibilities for multiple products at multiple accounts. One result is explicit conflict partly due to implicit disagreements about what constitutes “success” in performing a marketing activity. Managers in each area may agree that success is ultimately defined by “the customer.” But the groups that are jointly responsible for customer satisfaction perceive the customer differently.

Consider product introductions. At a telecommunications firm, one product group ran a promotional blitz to generate field enthusiasm for its product. But another product manager noted that, due to this campaign, “I just can’t compete for sales reps’ attention,” and redirected her efforts to telemarketing and reseller channels —distribution components not prominent in her original plans and where channel support required redesigning many product features. At a computer firm, product and sales managers typically disagreed about the timing of new product announcements. Sales preferred delaying announcements as long as possible because, as one sales executive explained, “Once a new product announcement is made, customers stop buying the current generation of products while they evaluate the new technology. The result can be stalled sales and quota-crushing delays.” But product managers preferred to announce new products as early as possible to build customer attention and train service personnel well in advance of actual introduction.

These marketing units also differed in their time horizons. In each firm, ongoing product-line development was a key product management responsibility, and, as a product manager at a medical equipment firm noted, “Crucial development decisions must be made years before introduction, and the consequences of those decisions linger for years afterward. Meanwhile, budgeting procedures at the customers contacted by sales and service rarely allow them to look long term in assessing their needs.” Moreover, product managers implicitly competed for the firm’s available development resources. This provided an incentive to “stretch” a proposed product’s applicability across multiple segments to justify budget requests and drive development resources in one direction — a finding consistent with previous studies of marketing budgeting procedures.10

With their focus on specific accounts, however, sales personnel had different time horizons and priorities. Even as product managers tried to stretch a product’s applicability across customer groups as part of the selling firm’s capital budgeting process, sales managers often tried to specify product requirements more narrowly in terms of buying processes at assigned accounts. A common result was the complaint of one sales manager at a medical products firm, “Salespeople know customer interests [but] we sometimes introduce products that product managers are successful in attaining from other functions, not what my customer wants.”

Measurement Systems

Quotas, performance appraisals, and bonuses for sales-people at the companies I studied focused primarily on sales volume. Product management measures focused on annual profit contribution for assigned products. Customer service metrics varied but typically involved both “customer satisfaction” (measured via customer surveys and/or customer retention) and cost efficiencies in providing relevant services. These varying metrics raise a number of issues at marketing interfaces.

In four firms, multiple product groups went to market via a pooled salesforce. The firms apportioned selling expenses to product units during the marketing planning process. A manager explained, “P&L product managers view the apportionment as a fixed cost [during the relevant budgeting cycle], and then push for as much sales attention as possible to their product line.” An example is a computer firm, where profit and pricing responsibility resided with each product group, while sales earned credit toward quotas and bonuses via a point system based on sales volume of individual products at list price (i.e., before netting out any discounts granted to customers). During annual negotiating sessions, sales managers and product managers set product point allocations. One executive described the process:

Product managers essentially lobbied [sales] to place more points on their particular product line in the annual sales compensation plan, and the negotiations usually centered on the allowable price discounts. Since the larger, better established lines had more room to move in this regard, the tendency was to place disproportionate emphasis on established hardware products and less on newer products, especially software and services. We knew something was wrong when, for three years running, 75 percent of field reps made their point targets while the corporation missed its annual revenue and profit goals.

Another issue concerns the impact of different measurement systems on account-management tasks. Every company in this sample had established a key account program for cross-selling at important customers. But prevailing metrics often made it difficult for account managers to orchestrate the selling company’s product and pricing package. An executive explained:

Sales and product see the world differently: a customer might be interested in a package of products, yet each product unit is primarily interested in its product line and resistant to altering price or terms and conditions for the sake of the package. But industrial customers are looking for productivity improvements and a vendor provides those improvements with a system, not individual products.

Conversely, salesforce metrics affect product development and service requirements. At a computer firm that sells mainframe and mid-range systems, an executive in the mid-range business explained the impact of revenue-based sales compensation policies on product policy. The firm sold mainframes through the direct salesforce, while mid-range systems required comarketing efforts between direct and reseller channels. To generate more field attention for its line, mid-range product management had for years skewed development priorities toward larger, higher-priced systems that provided more revenue for direct selling efforts. But one result was that, as a manager remarked, “We neglected the growing low end of this market, left ourselves open to more competitors, and generated pre- and post-sale service requirements that exceeded our resellers’ capabilities.”

Information Flows

The marketing units also differed in the types of data each unit tracked, the role and use of that data, and (in the majority of the firms I studied) the hardware and software systems for disseminating information among the groups.

Product managers viewed data about pertinent products and markets (defined as segments across geographical boundaries) as their highest information priorities. Sales managers sought data about geographically defined markets and specific accounts and resellers within those markets. Service managers needed data about both products and accounts but in different terms from the data categories most salient to product and sales units. As in many companies, accounting systems tracked costs and other information primarily by product categories, rather than customer or channel categories. One result was often a gap between the aggregate data most meaningful to product planning activities and the disaggregate data meaningful to account- or region-specific sales and service activities.11

How these marketing units used the information also differed. Product managers need detailed data relevant to product development, costing, and pricing decisions. They make formal presentations a part of their firms’ planning processes, more so than sales or service managers do. Hence, compatibility with the selling firm’s budgeting and planning vocabulary is an important criterion of useful data for product managers. By contrast, compatibility with multiple buying vocabularies and data categories are more important to sales managers. Also, the less formal and often time-constrained context of sales calls means that “a few key points” are an important criterion of useful information for sales personnel. Service’s responsibilities make detailed data about product specifications and delivery requirements important. But in contrast to priorities in product or sales units, compatibility with customers’ technical or logistical vocabularies are the criteria for useful service information.

These differing data uses can create organizational“transmission problems.” Across the companies I studied, the most common field complaint about information flows was the lack of timely information. One sales manager explained, “‘Timely’ means data relevant to current selling efforts. The information is not useful if it arrives too late to be used in our customers’ budgeting cycles.” Product managers in this firm provided the complementary perspective, “We spend considerable effort gathering and writing up product and competitive information, send out that information, and reps call a week later for the same information. [For product managers], this takes time away from other important things.” Such comments reflect different cycles of information use. Industrial product managers must typically gather and present data to and from a variety of internal departments. At one company, charting a product’s competitive price and share for annual planning purposes meant soliciting data from more than twenty countries as well as finance, warehousing, and sales departments. By contrast, the timing of sales’ and service’s information needs is irregular, less capable of being scheduled, and generated (in sales’ eyes at least) by an “urgent” customer need.

Finally, information technology also affected marketing interactions and output. At most of the companies in my sample, the hardware and software used for disseminating information among the units had become fragmented. Meanwhile, customer activities required the integration of data captured by multiple, often technically incompatible systems. For example, at the telecommunications firms, competition for commercial customers increasingly focused on developing and selling network applications. In both firms, software and marketing expenses began to surpass annual facilities expenses. But both firms also encountered the following situation: their product, sales, and service units used different information systems and means to categorize expense data, resulting in a number of inconsistent and money-losing bids for commercial business. At a computer firm where sales and product units utilized different information systems, salespeople candidly admitted that they often shaped orders to avoid cross-product orders because of the time-consuming internal interactions involved. In turn, this limited the company’s presence in important systems integration markets.

More generally, fragmented information systems mean that the groups meet to discuss customer-related issues on a reactive rather than proactive basis, and each group arrives with ideas based on different data sources. In practice, it is difficult to coordinate under such circumstances.

Competency Traps

The traditional alignment of industrial marketing roles and responsibilities assumes a sequential process in which sales and service execute product management’s plans (see Table 2). But market developments are changing their coordination requirements. As outlined in Figure 3, there is a “domino effect” inherent in the market factors discussed earlier in this article, which place more emphasis on a firm’s ability to customize product-service packages for more diverse customer groups. This places more value on the ability to generate and maintain timely segment- and account-specific knowledge throughout the marketing organization. In turn, this places new requirements on field sales and service systems because, in most industrial firms, this is where primary responsibility for customer access and information exchange resides.

In many companies, the result is a misfit between market developments and the organizational capabilities needed for effective marketing. Product, sales, and service units must synchronize their activities in a context in which each unit’s window on the external environment, its metrics and time horizons, and its information flows differ. Each unit adopts routines that accelerate the performance of its own subset of customer-contact responsibilities. Provided these routines support using procedures with the highest potential for customer satisfaction, this specialization is advantageous. But in most busy organizations, the routines themselves soon are treated as fixed. The result is too often a series of “competency traps” in which each group is unwittingly “fighting the last war” — i.e., developing and executing marketing programs relevant to a previous stage of product-market competition.12 Further, each unit’s established procedures keep the firm from gaining experience with new procedures. Other alignments may be more appropriate to changing market conditions. But competency is associated with the information flows supporting the metrics that complement the hierarchy of attention at each marketing unit.

Managing New Requirements

How can managers avoid competency traps? How can they think about the options involved in coordinating these marketing units? A first step is to recognize the organizational issues that typically impede coordination among the groups. Because integrating their activities takes time and resources, however, the next step involves choices about where and how to attempt links along the continuum of tasks outlined in Figure 1.

At the companies I studied, major initiatives fell into three categories: an emphasis on headquarters structural devices, such as formal liaison units; changes in field marketing systems, such as multifunctional account teams; and alterations in broader management processes, including new career paths and training programs. These categories are neither exhaustive nor mutually exclusive. Most firms utilized a variety of linkage mechanisms among, and in addition to, those discussed here. Moreover, the initiatives are themselves interdependent: new headquarters structures without supporting field implementation systems, or new account-management systems without the appropriate human resources and wider organizational processes, have limited impact. But these initiatives were the most widely used, and, at different firms, each frequently represented the “platform” on which management hoped to build complementary mechanisms for improving product-sales-service integration. Further, the emphasis on each set of initiatives differed for companies in different business environments. Next I evaluate the environment, benefits, and key issues associated with each approach.

Liaison Units

One dimension along which industrial firms differ is the relative complexity of product technology and how dynamic the technology is. When product technology is complex and fast-changing, coordinating mechanisms need to ensure that product, sales, and service units work together on aspects of marketing plans and programs while maintaining distinct expertise in product development and account management tasks. In my sample, the computer firms dealt with the most complex and fast-changing technology. In these firms, product development required concentrated technical expertise and sales or customer input far in advance of introduction, while effective product introductions required sales and service to identify the specific product-service combinations that compose a customer solution in the field.

In these firms, formal liaison units were common. Located at headquarters, their focus was on “upstream” interactions between product management and field sales and service units in developing marketing plans and during the introduction phase of product programs. One executive explained:

We must accelerate our time to market. Also, customers want integrated solutions. That means forging closer working relationships between our labs, field sales, and product management groups to make sure customer requirements are known early in product development. Differences must be resolved more quickly, and [the liaison units] are intended to expedite this process and surface any problems earlier in the development-to-introduction cycle.

One benefit of establishing such units is that they signal the importance of product-sales-service collaboration in companies where these activities have traditionally been in separate departments, each with its own hierarchy of attention. Without a dedicated liaison unit, informal methods of managing their interactions are often too time-consuming (in a rapidly changing marketplace) or simply ineffective because other units view attempts by product, sales, or service personnel to alter their plans as inappropriate infringements on their domain. This is true whether or not the company conforms to popular conceptions of bureaucracy. An executive at a computer firm known for its informal culture of empowerment noted:

We are a company with few official channels. But when product managers tried to alter sales plans, or when a sales vice president lobbied for a product modification, they were seen as meddling in the other group’s business and without understanding the tradeoffs involved. Important changes weren’t made even though more people spent more time in meetings. Despite our distaste for structure, we found we needed an official liaison group.

Usually staffed by sales as well as product personnel, liaison units also help to shape product plans and promotions with field realities in mind. They provide a specific decision-making mechanism in an environment where important tradeoffs and marketing information increasingly reside at the interfaces among product, sales, and service groups, rather than within each area. At one firm, the liaison unit had a limited budget to fund the development priorities that field groups identified. The unit head explained how this affected product-sales interactions:

In a technically complex category, each product unit works for years on its line, and the natural tendency is to provide the state-of-the-art configuration. But the result is often a product with costs too high to support a competitive price or too late to capture important first-mover advantages. Our role is to increase the market tension in the development process.

For example, we believed a new low-end product, at a certain price point, would be an important addition to our line. We then informed the relevant product manager that her group could have $X million and a certain time frame to spend on this project. She responded with a figure of $2X million and a longer development schedule, and our response was that we would take our funds to another product group to get the work done. Her reaction was, “We’ll look again at our assumptions and get back to you.” We finally compromised on the time and money involved. The process forces a healthy prioritization of time and resources.

Another benefit is that liaison units can make increasingly segmented customer requirements salient earlier, and higher, in planning processes. Some managers stressed an analogy with quality initiatives: such units, an executive commented, help to “make visible issues that cut across product and sales groups, just as quality circles helped to build awareness of the cross-functional requirements of quality management.” A manager in one liaison unit explained that, at planning sessions, “My role is to inject industry or other vertical market applications criteria into what would otherwise be investment decisions guided by product categories.” Another liaison unit altered traditional product development processes to take explicit account of the interplay between product features and the requirements of selling and servicing customers through indirect distribution channels.

Liaison units represent another management layer with attendant costs in salaries, support systems, and overhead. As a result, such units require a critical mass in the firm’s product portfolio and sales base to be economically viable. Thus, they tend to be established in larger companies where the additional management layer can be a mixed blessing for speedy marketing decision making.

Further, liaison units usually face a constant challenge from line managers in product, sales, and service, who often perceive them as staff interlopers rather than integrators. In practice, these units tend to be the focus of many contentious negotiations. This may be inherent in their role, which must balance consistent product strategies with customized channel and service requirements — or, as one liaison manager commented, “We sit in the middle between product management’s development and manufacturing concerns and the field’s selling and service concerns, and we don’t ‘own’ resources on either side. So, information, personal relations, and judicious use of top management become paramount management tools.”

To develop credibility and influence, these units need managers with broad organizational contacts and current knowledge of changing product and field realities. This presents a staffing challenge in many industrial firms. Experienced managers are often reluctant to take a position with no direct line authority. And, to keep contacts and knowledge current, these units typically rotate personnel frequently. The head of one liaison unit noted:

In staffing, you need a balance between “short-timers” and “long-termers.” Rotating twelve- to eighteen-month assignments keep our field contacts and information current; on the other hand, our development process is lengthy, and it takes time and continuity [to] understand the product strategy, develop trust in the development groups, and master the complexity of product introductions. My staff is about 80 percent short-timers and 20 percent long-termers.

This is a difficult balance to achieve, and the danger with this amount of rotation is that other managers will see those in the liaison unit as “always learning what their job is.” But when balance is achieved, these units provide a way to capture and disseminate learning about important marketing-interface activities and to combine one group’s product-technology perspectives with others’ channel-account perspectives.

Multifunctional Account Teams

Another important dimension distinguishing industrial firms is their coordination requirements for managing customer relationships. At one end of a spectrum, a firm may sell one product with one application to an account. At the other end are companies selling multiple products with multiple applications among multiple sites of an account, each interdependent in terms of the vendor’s selling and/or service activities. In the latter situation, important account management tasks require the alignment of multiple areas of expertise at both the buyer and the seller.

The medical products firms in my sample encountered this requirement at multihospital chains and group purchasing organizations (GPOs). Both are intended to increase buyer power, and, during the past decade, most U.S. hospitals have established affiliations with chains or GPOs. These organizations purchase across the seller’s product line and choose vendors on the basis of specialized services in addition to price (e.g., logistical support, special order-entry systems, or ongoing reports about product usage in various hospital departments). In providing these services, the medical products suppliers in my study instituted multifunctional account teams for selected customers.

These teams comprise individuals from product marketing, sales, service, and often manufacturing, logistics, MIS, and other functions. Unlike the liaison units described above, the focus is rarely on product development activities but, rather, on interactions for cost-effective implementation of services that cut across the seller’s product groups, sales territories, and business units. Hence, this approach differs from traditional account-management programs in two ways. First, the nature of buyer-seller exchange places a premium on effective supply chain management, and the team’s primary responsibility involves reducing the spectrum of cost-in-use components outlined in Table 1. One executive commented:

Traditional account management — where a salesperson coordinates the seller’s resources — works when you’re providing a solution for a customer in a discrete functional area. That’s project management, and good salespeople are good project managers. But in our industry, the value added is in providing solutions that cut across our customers’ functions and our own product, selling, distribution, and service activities. That’s program management and requires a different approach.

Second, because of this emphasis, the account manager in such situations is not necessarily someone from sales, because core tasks involve integration of product bundles, pre- and post-sales services, stocking and other logistics arrangements, and ongoing information exchange about evolving product use and applications. At one firm, the manager of a multifunctional team for a buying group was a finance executive, partly because new MIS and distribution links between the buyer and seller make payment terms a way to increase sales to this account and a way to protect the seller’s pricing structure in response to increasingly cost-conscious buyers.

One benefit of this coordinating mechanism is that it can focus information flows on the ultimate source of revenues and profits: the customer. The multifunctional team becomes a way of dealing, on an account-specific basis, with the information “transmission problems” noted earlier. At industrial firms, product managers typically have the product-profitability data, knowledge of planned product introductions, and other information necessary to customize profitably a company’s product-service package. But sales and service personnel have the accrued local knowledge necessary to know what specific customers value in each area of supply-chain activity. This approach facilitates exchange of information at the account level.

Another benefit is the impact on business planning. Salespeople at major customers are often the first to recognize emerging market problems and opportunities. But they often lack the means to respond with more than tactical (usually, price-sensitive) programs. One reason is that, without this approach, sales efforts lack the cross-functional perspective required to manage cost in use. Also, with traditional account-management systems, sales and service efforts on behalf of individual product groups hamper the vendor’s ability to track and manage its true marketing costs at an account, while obscuring the service value that it often does provide to customers that purchase across the product line. A senior executive at a medical products firm commented:

Traditionally, we categorized customers by the amounts bought from different product groups. That’s the way we were organized, but not the way markets act. Our total costs and benefits with a hospital or GPO were large but “hidden” because sales were spread across product groups. We have the broadest line in the category (which facilitates customer ordering and usage), a broad distribution network (which makes inventory management easier to handle and plan), and our sales and service personnel provide extensive end-user training and other services not explicitly costed out in our contracts. Accounts will focus on price and ignore these services unless there’s a coordinated approach on our part.

Key issues in managing multifunctional teams are team staffing, decision-making processes, and account selection. This approach may spur integration at the account level, but wider functional reporting relationships usually remain intact. Hence, when resources are allocated, the lines of authority are often unclear. One firm required more than a dozen senior executive signatures to approve team initiatives with accounts. Another firm allocated account-team funding by product group, raising concerns in each group about “who works for whom” when account behavior and product-group goals did not coincide. One manager remarked:

When we established a multifunctional partnership with [account Z], people here were thrilled. But that account recently decided to source one of our product categories from a competitor. That product group is outraged. “Partnering” often connotes across-the-board agreement to many managers, and that’s unrealistic. We have many common goals and conflicts with this account. And the tradeoffs differ for individual product and sales units in our firm.

Multifunctional teams also raise human resource challenges. Team members from different functions rotate even as the team seeks to build continuity and relationships with customers. Product, service, and other personnel often resist what they see as a “sales” assignment. Conversely, many salespeople, accustomed to working on their own, often lack the skills and temperament for operating in teams.

Finally, this approach generates many transaction-specific investments for sellers. Some firms require major IS investments to provide on-line order entry, automated stock replenishment, and other supply-chain services to accounts. One manager explained:

Which customers don’t become multifunctional partners? That’s a tough issue. Inevitably, other accounts want the customized services that account X is getting. And if we don’t give that service, one of our competitors will. Also, many of the product-sales-service linkages required to implement the concept are specific to an account, and the benefits for individual product and sales units in our company differ widely by account. I’m not sure the customer incurs the same switching costs we do.

These factors ultimately emphasize the importance of rigorous account selection in linking functions. The successful multifunctional teams at these firms shared certain characteristics: (1) initiation of the approach at top levels of both buyer and seller firms; (2) a buyer who buys across the seller’s product line; and (3) customers seen as influential and leading edge in some aspect of product applications or supply-chain management, so that the seller’s investments yielded benefits at other accounts.

Career Paths and Training Programs

In many high-tech industrial firms, career paths in product management and sales diverge sharply. Product managers have undergraduate technical degrees, are increasingly recruited from MBA programs, and rotate among product lines as preparation for a potential general management position. Salespeople usually have much less technical training, and their career paths keep them in a given sales territory for some time so that account relationships are not severed. Rarely do the twain meet. In other industrial firms, career paths in sales versus service are the mirror image of the product-sales situation in high-tech firms. Sales is the “fast track” up the management hierarchy, while service personnel accrue “time in territory” experience with end users and distributors.

Hence, beyond changes in structure and account teams, companies have tried to develop managers experienced on “both sides” of marketing interfaces. In my sample, this was especially true at telecommunications firms, for reasons related to their business environment. During the 1980s, after the development of fiber optics and new network software, these firms provided many new voice/data/messaging service combinations. The same software also allowed commercial customers to track patterns of telecommunications use in their organizations more easily and precisely. The result was to increase dramatically the range of potential product-market applications and shift the basis of competition to product packages tailored to customer specifications that differ by industry, size of company, and region. One executive explained:

A key company asset is the shared network, and that means headquarters product management must understand the interrelationships implicated by each product introduction or modification. The complexity of this increases as software-based services become a bigger part of the products we offer. Similarly, in a high fixed-cost service operation, sales and service personnel confront a quickly expanding product line and must deal with more groups in pre- and post-sales activities that affect our shared asset.

Thus, coordinating mechanisms in these firms must address a situation in which adapting a core asset requires local knowledge that is unavailable (or too costly to gather and keep current) at headquarters levels, but in which using shared resources efficiently also requires central oversight to ensure that field activities support companywide operating and marketing objectives (e.g., capacity utilization and consistent product positioning and pricing).

To address this situation, the telecommunications firms have altered career tracks to provide more cross-functional mobility for product, sales, and service managers. This includes expanding the length and type of field sales exposure required for product management positions and creating new positions. One firm established field marketing specialists (FMS), mid-level product and sales managers who, after eighteen to twenty-four months in this position, were slotted for senior line positions in the core product or sales organization. Unlike the liaison units described earlier, FMSs are assigned to field regions, but, unlike the multifunctional account team initiatives, their focus is on a subset of the firm’s product line, not on a specific customer. FMSs have two roles: (1) to increase learning (and comfort level) with new selling and service requirements (FMSs work with sales and service managers on applications identification, product demonstrations, and installation) and (2) to coordinate these field activities with headquarters product units. FMSs are a way for a product group to “sell” field managers on a new initiative. Conversely, FMSs negotiate with product groups for the product modifications and engineering resources needed locally.

At another telecommunications firm, the customer service engineers (CSEs) were at customer locations more frequently than the salespeople and were important to customer retention and revenue growth in the installed base. Yet, an executive explained, “CSEs are technical people who don’t like to think of themselves as selling, even though that’s what they’re implicitly doing. Conversely, many sales reps worry about account control; their attitude is, ‘No one can do this at my account as well as I can.’” The company now provides joint training for salespeople and CSEs and has realigned its reward system to provide a new-revenue bonus that sales and service personnel at an account share. In addition, sales and service reps now evaluate each other on a questionnaire that ranks performance in such areas as “quick response” and “contribution to customer satisfaction.” Customers complete these questionnaires, managers to whom the sales and service reps report review them, and sales and service personnel assigned to the same account meet biannually to explain their evaluations. A manager noted, “These discussions are a considerable benefit in a business where, for good logistical reasons, the sales rep is dedicated to a select group of accounts, but these customers are among dozens that clamor for the service rep’s attention.”

One benefit of these initiatives is better awareness of another unit’s operating conditions, constraints, and contributions. Managers with product and sales experience, for example, are more likely to develop marketing programs that reflect their reciprocal requirements. One interviewee, who became a product manager after a decade in sales, noted, “In sales, I had no appreciation for what product marketing does. In sales, there are identifiable wins and losses, but 80 percent of product management is invisible to salespeople — and essential to effective selling.”

More generally, these assignments help to build what an observer called the “thick informal networks one finds wherever multiple leadership initiatives work in harmony. . . . Too often these networks are fragmented: a tight network exists inside the marketing group and inside R&D but not across the two departments.”13 Similarly, a study of multinational firms found that cross-country career paths create a “verbal information network . . . which results in [coordination] that is personal yet decentralized,” allowing local discretion within the context of companywide policies.14 Likewise, product-sales-service career paths provide bridges across the differing information flows described earlier and complement any formal liaison positions. With training programs, these assignments can also develop what one executive called “system savvy. Most managers are ‘good citizens’ who want to do what is right for the firm, not just their area. But they’re often unaware of the impact of their decisions on other parts of an interdependent business system. Our joint training programs and career rotation aim at disseminating this savvy.”

However, the management issues raised by this approach are formidable. In many industrial firms, joint training programs usually entail additional training beyond the still-required functional training in product management, sales, and service tasks. So, beyond incremental expenses, therefore, people are spending more time in training and less on “core” activities; some firms view this as unnecessary or infeasible in a cost-conscious environment in which they are not adding marketing personnel.

Similarly, these career paths entail multiyear time horizons for the company and the individuals involved, plus a willingness to assume inherent career risks, since most managers have risen to their positions by acquiring functional expertise. Cross-functional career paths tend to build skill bases that are more company-specific than do functionally oriented careers. In Japanese firms, while cross-functional rotations and training programs are common, they are traditionally complemented by “lifetime employment” patterns, promotions based on seniority, and, historically, social pressures on managers who seek to switch employers. As a result, Japanese firms have had more assurance that a competitor will not reap returns on long-term investments in cross-functional careers, while individual managers have less incentive to develop a career via expertise in one area and more incentive to develop cross-functional skills at a single firm.15 These wider corporate and social conditions rarely pertain at Western companies. Hence, at the firms I studied, training and career path initiatives were limited to a few managers who often encountered obstacles because most careers in their organizations proceeded according to a different paradigm.

Conclusion

Firms utilize other initiatives in addition to those I discuss here. Managers interested in improving linkages among product, sales, and service units should not focus on identifying only one preferred approach. Rather, after analyzing how market factors affect marketing interdependencies in their firms, managers should focus on those areas and actions that, within their business context, are likely to provide the best returns on time-consuming and expensive coordination efforts.

Table 3 summarizes the focus, environment, and key management issues associated with each initiative I discuss. By highlighting the implementation issues, Table 3 emphasizes an important challenge facing firms in this aspect of their marketing efforts. “Coordination” is a value-laden term with positive connotations. Especially before making tradeoffs and allocating resources, managers’ espoused support for coordination is now the “politically correct” attitude. But, as this article indicates, coordination comes at a cost, and each approach is implicitly a choice about the kinds of ongoing issues a firm must monitor and manage.

Further, the conflicts I discuss partly reflect the continuing need for specialized expertise in each marketing unit. Such expertise is important for achieving the in-depth knowledge, scale and scope economies, and ongoing efficiencies in each unit that remain important aspects of industrial marketing efforts. Hence, the goal in managing new marketing requirements should not be to eradicate differences between these groups or to assert that “everybody is responsible for customer satisfaction.” In most busy organizations, what everyone is responsible for in theory, nobody is responsible for in practice. Rather, the managerial issue is how to link, efficiently and effectively, knowledge, resources, and varying sources of customer value that are necessarily located across different marketing units in many industrial firms. In considering the initiatives I discuss, managers must keep this distinction in mind, while recognizing that, without appropriate linkages among these groups, their firms increasingly encounter two other types of costs.

One cost is fragmentation at the company-customer interface. The market factors outlined in Figure 3 mean that effective marketing management at industrial firms requires developing and executing customer solutions across internal product, sales, and service units. But the differences outlined in Table 2 tend to direct funding, time, attention, and efforts within, rather than across, these units. The result is too often a partial solution, with limited customer value and usually negative competitive consequences.

The other cost is more subtle. The issues discussed in this article rarely mean total paralysis in interactions among product, sales, and service units. Managers needing to “get product out the door” will forge agreements sooner or later. But the nature of these agreements is unlikely to maximize customer value, and the process itself can be harmful. One executive, commenting on interactions between product and sales managers in her company, articulated the implicit cost, “We spend so much time bargaining, and the result is that we often unintentionally reward managers for their negotiating skills, not for problem solving or customer-oriented performance.”

Appendix

The study involved 125 personal interviews at six industrial firms: two computer firms, two telecommunications companies, and two medical equipment suppliers. At participating companies, the focus was on business units where product management, sales, and customer service activities are primary responsibilities of various managers within the business unit’s marketing function. In 1992, sales of these business units ranged from $100 million to more than $1 billion.

At each company, I conducted interviews with managers on both sides of each sales interface and, when present, with formal liaison managers between sales and product management or service units, as well as selected managers in areas such as R&D, MIS, and market research. Other data included internal company documents that interviewees supplied, personal observation while attending company meetings, and customer calls with field sales and service personnel.

The unstructured interviews averaged ninety minutes. Interviewees received a list of the research questions in advance. Thus, most interviews focused on one or more of the following questions (depending on the responsibilities of the interviewee): (1) What are the major issues facing your area in interactions with product management/sales/service?; (2) What factors determine the relative importance of coordination with each group, the tasks that must be coordinated, and the kinds of conflicts or opportunities that arise?; (3) What mechanisms exist in your firm for managing these joint tasks?; (4) In practice, how do things most often “get done” at these sales interfaces — i.e., what are the informal as well as formal means for managing interactions across these marketing units?

References

1. For pertinent studies of industrial product introductions, see:

J. Choffray and G. Lilien, “Strategies behind the Successful Industrial Product Launch,” Business Marketing 17 (1984): 82–94;

R. Cooper and E. Kleinschmidt, “New Product Processes at Leading Industrial Firms,” Industrial Marketing Management 20 (1991): 137–147;

J. Konrath, “Why New Products Fail,” Sales & Marketing Management 144 (1992): 48–56; and

V. Mahajan and J. Wind, “New Product Models: Practice, Shortcomings, and Desired Improvements” (Cambridge, Massachusetts: Marketing Science Institute, Report 91–125, 1991).

2. Developments tending toward a merging of manufacturing and service businesses have been discussed from various perspectives. For example, see:

J. Gershuny and I. Miles, The New Service Economy (London: Pinter, 1983);

M. Piore and C. Sabel, The Second Industrial Divide (New York: Basic Books, 1984);

J.B. Quinn et al., “Technology in Services: Rethinking Strategic Focus,” Sloan Management Review, Winter 1990, pp. 79–87; and

R. Norman and R. Ramirez, “From Value Chain to Value Constellation,” Harvard Business Review, July–August 1993, pp. 65–77.

3. For data concerning product variety, see:

S. Wheelwright and K. Clark, Revolutionizing Product Development(New York: Free Press, 1992), chapter 1.

4. E.R. Corey, Procurement Management: Strategy, Organization, and Decision Making (Boston: CBI Publishing Company, 1978).

5. J. Emshwiller, “Suppliers Struggle to Improve Quality as Big Firms Slash Their Vendor Rolls,” Wall Street Journal, 16 August 1991, p. B1.

6. For more on this topic, see:

F. Cespedes, “Once More: How Do You Improve Customer Service?,” Business Horizons, March–April 1992, pp. 58–67. For an excellent discussion of wider cross-functional issues implicated in supply-chain initiatives, see:

H. Lee and C. Billington, “Managing Supply Chain Inventory: Pitfalls and Opportunities,” Sloan Management Review, Spring 1992, pp. 65–73.

7. For data concerning product life cycles in various industrial product categories, see:

C.J. Easingwood, “Product Life Cycle Patterns for New Industrial Products,” R&D Management 18 (1988): 22–32; and

C.F. von Braun, “The Acceleration Trap,” Sloan Management Review, Fall 1990, pp. 49–58.

8. For data on responsibilities of industrial product and sales personnel, see:

R. Eccles and T. Novotny, “Industrial Product Managers: Authority and Responsibility,” Industrial Marketing Management 13 (1984): 71–76; and

W. Moncrief, “Selling Activity and Sales Position Taxonomies for Industrial Sales Forces,” Journal of Marketing Research 23 (1986): 261–270.

9. What I here call “hierarchies of attention” is analogous to what some have labeled organizational “routines” or “thought worlds”: the patterns of activity that characterize different subgroups in a firm, that shape the assumptions and marketplace interpretations of each group, and that in turn become the “genes” of a firm’s repertoire of capabilities.

For a discussion of organizational routines, see:

R. Nelson and S. Winter, An Evolutionary Theory of Economic Change (Cambridge, Massachusetts: Harvard University Press, 1982), chapter 5. For a discussion of the various “thought worlds” that characterize groups typically involved in industrial product development activities, see:

D. Dougherty, “Interpretive Barriers to Successful Product Innovation in Large Firms,” Organization Science 3 (1992): 179–202.

10. See M. Cunningham and C. Clark, “The Product Management Function in Marketing,” European Journal of Marketing 9 (1975): 129–149; and

N. Piercy, “The Marketing Budgeting Process,” Journal of Marketing, October 1987, pp. 45–59.

11. For a discussion of the gaps between accounting data and the types of information sought by managers in various functional areas, see:

S.M. McKinnon and W.J. Bruns, Jr., The Information Mosaic (Boston: Harvard Business School Press, 1992).

12. B. Levitt and J.G. March, “Organizational Learning,” Annual Review of Sociology 14 (1988): 319–340.

13. J.P. Kotter, A Force for Change (New York: Free Press,1990), p. 92.

14. A. Edstrom and J.R. Galbraith, “Transfer of Managers as a Coordination and Control Strategy in Multinational Organizations,” Administrative Science Quarterly 22 (1977): 251.

15. See M. Aoki, “Ranking Hierarchy as an Incentive Scheme,” in Information, Incentives, and Bargaining in the Japanese Economy(Cambridge, England: Cambridge University Press, 1988), chapter 3; and

K. Koike, “Skill Formation Systems: Japan and U.S.,” in The Economic Analysis of the Japanese Firm, ed. M. Aoki (New York: North-Holland Press, 1984), pp. 63–73.

Reprint #:

3534

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