Theory of Constraints Handbook - James Cox Iii [405]
Dr. Goldratt has a PhD in organizational psychology and conducted her dissertation research on employees’ reactions to positive organizational change.
CHAPTER 21
Less Is More—Applying the Flow Concepts to Sales
Mauricio Herman and Rami Goldratt
Introduction
Ever since we embarked on the Viable Vision, the mission of our company is to become an ever-flourishing company. A company that is capable of exponential growth by relying on processes that ensure growth does not come at the expense of stability. Our main drive is to establish, capitalize, and sustain a decisive competitive edge. A decisive competitive edge can only be created by satisfying a significant need of the market to the extent that no other significant competitor can. The needs we chose to capitalize on are Reliability and Speed.
During the last years, we have fully transformed our sales approach. We have changed from selling products to selling solutions, from selling based on price to selling based on value. Our sales people understand more and more that chasing orders is not the key for growth; that they should possess the skills to close business deals. We have implemented changes not only in the way we are selling, but also in the way we administrate and manage sales opportunities.
The results of these efforts can be viewed in many aspects. Our sales and Throughput have increased in recent years. The market (based on the reaction of clients) perceives more and more that our company is not just another supplier. We have significantly changed our product mix to better Throughput products. We have increased our share with existing clients. We have increased our client base and reduced our dependency on a few big clients. The efforts have also produced less tangible results; looking at the behavior of our departments, it is evident that we have dramatically enhanced our ability to initiate and adopt changes.
Despite these results, we all felt that something was still lacking. The most important measurements—profitability and sales volume—were a clear indicator that there was still a big gap between the current reality and the reality we wished to create. When viewing the trend of sales and profit growth, it was apparent that we were not growing at the desired rate. The obvious question was, “What is still missing?” With all the improvements we had made, why were sales not growing at the much faster rate that all indicators showed we should have achieved?
Copyright © 2010 by Mauricio Herman and Rami Goldratt.
In the last few months, we have improved the measurement and reporting of our sales efforts. One striking measurement was our hit ratio. Our funnel seemed loaded with opportunities, but we were winning very few of them. Every client we presented our offer to liked the offer, and eventually we won at least one of the requests for projects1 that the client requested from us. However, most of the requests by these clients that entered the sales funnel did not turn into orders. Moreover, the same clients who expressed genuine interest in our offer were evidently introducing many promotions to the market without us even participating in the process. The number of projects in our sales funnel was 250; our hit rate was at 11 percent.
In July 2008, I read Eli Goldratt’s new article, “Standing on the Shoulders of Giants.”2 The article allegedly deals with production issues; it highlights the concepts that underlie three of the major production system breakthroughs of our times: Henry Ford’s production lines, Taiichi Ohno’s Toyota Production System (TPS, later known as Lean), and the Drum-Buffer-Rope (DBR) application of the Theory of Constraints (TOC), which was developed by Eli Goldratt. You may ask yourself why this is relevant to the topic of sales. Well, the concepts underlying these breakthroughs struck me as being highly relevant to the management of sales opportunities.
The following paragraph is taken from the