Alexander Group Principal Kyle Uebelhor discusses part two of a three-part series of changes caused by customers affecting the manufacturing industry. Part two discusses optimizing for differentiated growth.
Hi again, it’s Kyle Uebelhor with the Alexander Group. Happy to be back again, to talk about the second of our three major themes that we’ve been seeing over the past several months around the world in the manufacturing vertical. As the leader of AGI’s vertical practice, it’s interesting to us as we have conversations with our clients that today’s theme, in particular, optimizing for differentiated growth, resonates so specifically with manufacturers, and it doesn’t matter how big or small, global or domestic you might be. This idea that oftentimes organizations were able to grow inorganically through acquisitions, they were able to fill in a portfolio of products or find strategic partners that they were able to acquire and admit a growth number, basically by just buying more companies. We know now that that inorganic strategy is no longer sustainable. What we’re seeing organizations do is thoughtfully assessing and aligning select opportunities with the right part of your portfolio to really yield differentiated growth. For us, differentiated growth is just two to three percent above your market competitors, and doing so really delivers extraordinary earnings per share that oftentimes your board or your executive team will look for. Well, how do you evaluate? How to get that differentiated growth? Really comes from a couple of key ideas. First, and most importantly, you’ve got to get the leverage you paid for. In other words, if you’ve got a multitude of portfolio sales organizations through legacy acquisitions, you need to look at your earnings per rep and your earnings and your expense to revenue ratios. Again, that’s earnings per rep. How much are the reps actually making per individual, in expense to revenue ratio. These two things in relation to the type of sales motion that you’re delivering or the route to customer you’re delivering, help you understand whether or not you’ve actually got what you’re looking for in terms of those portfolio companies.
In addition, organizations are taking a healthy look across their entire portfolio of sales teams to ensure that they’ve got the right talent in place. This expectation of talent evaluation is a key component to really optimizing where you want to go. We do know that there is a pending cliff of retirement for many sales teams. You know, legacy sellers who’ve been with you for quite a while. Do you see an end point in their careers? And a lot of organizations don’t know quite how to bring in that next new batch of talent. Beginning with a thorough assessment of your teams, is really the first place to start. Secondly, when we’re thinking about organizations, optimizing for differentiated growth is this concept of making sure that there’s a connectivity between your manufacturing product pipeline. In other words, what’s in your new product development cycle and the actual day to day funnel that you’re managing? We know that there is a high degree of value in being able to have an intermediary, some individual or part of a team. Oftentimes, it’s sitting within sales operations that connects the dots between that future potential product developer. What do we have out there that we are going to improve upon or create a new space for us with a product or service and tying it back into our existing manufacturing funnel. In other words, do our future products actually have a connection back to specific account opportunities and buyers. We have found that folks who actually think about two discrete pipelines that are interconnected really are able to sort of meet next quarter’s number by managing the current funnel appropriately and then sleep easy for the next two quarters because they know that the product development pipeline actually connects back to somebody in some buyer who is going to make a purchase.
The question that we oftentimes ask when folks have this discussion or the issue with the disconnected pipelines, in other words, the product pipeline not matching to customers who are in your current funnel, is are you investing the right amount in sales operations efforts? Again, as I mentioned, it’s typically the sales operations team who bridges the gap between product developers, marketing departments and the sales organization to garner the insights that are driving better and more development of our existing pipeline of product. But most importantly, connecting the dots to make sure that our current sales teams are effective and efficient. So if we think about this, optimizing for differentiated growth is the key to ensuring that you’ve got a sustained business model. Again, inorganic growth is not going to sustain you and you’re not going to have that latitude to continue to go on for additional growth via acquisition. So thinking about how you both manage and evaluate your existing sales team and connecting to parts of a sales pipeline are key. If you’d like to learn more about how Alexander Group views these issues or schedule a briefing, please visit us on our manufacturing web page at alexandergroup.com.