EP197: Divisional vs. Departmental - Structure for Sales Innovation
The guys are back together! Join our master salesmen Corey Frank and Chris Beall as they dive into this discussion on business strategy inspired by a recent event Corey attended featuring Rami Goldratt of the Theory of Constraints Institute. Discussing key concepts like inertia, identifying constraints, and the politics involved, they provide insight for sales managers and CROs looking to break through barriers to growth. Chris explains how constraints manifest on the buyer's side, in their emotions and feelings of possibility. On the execution side, he advocates building key elements in advance to avoid delays. He and Corey cover divisional vs departmental structure, M&A pitfalls, and more insights. Join them for this episode, “Divisional vs. Departmental – Structure for Sales Innovation.”
Here we are once again. Welcome to another episode of the Market Dominance Guys, with Corey Frank, and of course the Sage of Sales, the prophet of Profit, the Hawking of Hawking, Chris Beal. Chris, it's been a minute or two since the two of us have been in the same virtual room. How are you?
It. Oh, hey, listen, we depend on the Gerry Hills of the world and the Ryan Reiserts of the world and the Sean Ceases of the world to write so prolifically and so poetically and so elegantly, and then steal their ideas at scale. So [00:01:00] that's certainly what I do. I speak for myself, of course, but I love their writings in particular and there's many, many, many more out there. Hey, in the meantime, since the last time we had spoken and met a lot of folks, I know Taylor Swift has been in the news on a concert tour and then the Rolling Stones have had a tour that was kind of going and then interrupted and it's starting again. And then Ed Sheeran also was recently on tour, [00:01:30] but I think although both of us, we kind of like music, we had a different tour that I figured that I'd share with you, and I sent you my picture, my Taylor Swift, our Taylor Swift, our Mick Jagger, and our Ed Sheeran. And that of course is Rami Goldratt from the Theory of Constraints Institute. He came to town on a special concert tour, and of course I had to drop everything and send you a selfie with a master himself because that's how we roll, [00:02:00] right? As the other eight listeners on this podcast, I think that's what we care about is anything and everything with regards to market dominance and certainly the theory constraints plays a big part of that, doesn't it, Chris?
Oh yeah. I mean the whole market dominance concept is built on the theory of constraints. As you know, I have a disciple of fanatic, and the trick with these things is they give you a framework to think, but you still need to think and you still need to do experiments, and you also need to look into your own mind and your heart and say, [00:02:30] am I looking at this objectively or am I playing mind games with myself? So that's what makes it so interesting.
It does. It crosses, although as you had educated me all those 10 plus years ago on Eli Gold Rat and that it was meant originally for the manufacturing space, I think what we've done here on the market dominance guys, certainly with your tutelage, is open up the minds of so many sales professionals like myself [00:03:00] that this transcends the manufacturing space into what we do in running sales organizations. Correct?
To me, sales is actually manufacturing. I mean, we're manufacturing the opportunity to solve a problem and supposedly we've come with a potential solution. Somebody has a problem that we could potentially help them with, but manufacturing that opportunity to solve a problem and to do it in a way that works for everybody. The other constraint, if you're going to do it over and over, [00:03:30] it's got to work for everybody. I mean, some folks in sales have been known to wear out their welcome a little bit here and there, but that's not sort of the ultimate game. So yeah, I'm a manufacturing oriented guy. I used to build manufacturing systems and software and spend a lot of time on factory floors and out in distribution centers, and when you make it physical, it gets real. That's one of the interesting things about the whole world of software is as soon as you make it physical, it gets very, very real. [00:04:00] And as you know, I'm married to Helen Ucci, who herself started her career as a manufacturing engineer. She's a M I T trained mechanical engineer. So you can imagine around our house on a Saturday morning when we're talking shop, it's pretty good if everybody else just stays home and NAS on a bagel.
Absolutely. Oh, for sure. Well, that's what I think we want to talk about here. If I could indulge you and indulge again our eight listeners here on diving a little deep, I want to [00:04:30] throw out a couple of observations from the two and a half hours that I was privileged to spend with ROI Goldratt and get your reaction. I was giving you a little bit of play byplay afterwards and certainly sent you some pictures, but I'd like if I could just kind of get some reaction and of course to level set the audience for some of the folks that haven't listened to probably about half our podcast. We talk in one form or another about the theory of constraints and business innovation. And one of the things that [00:05:00] Rami does to set to level set everybody is that if you look at your business as a whole and understand what governs the flow and constrains the business growth, that's how you should think about what we're about talk about here in the next few minutes with Chris Beal. So Chris, what Rami says and what Eli stated in the goal in the other books is that typically there's one or [00:05:30] two constraints, and I think you just hit one when you're talking about the development of software, he says that there's one generally constraint in the creation of value, and then there's another typical constraint in the execution of its delivery.
So the creation of value and the execution of delivery. And obviously part of it is focusing on elevating these constraints because these are those leverage points that help the business. But what do you say with [00:06:00] that in a sales world when you talk about would you agree with that in the creation of value and then in the creation of its delivery? And how would you square that circle for us in sales when it comes to those two constraints that we're faced with pretty often?
Yeah, it's so fascinating. I look at it from the buyer's side. And so where is the value going to be created in a relevant way in sales? It's actually inside the buyer's body, it's [00:06:30] inside their emotions. And so if the buyer responds to what the salesperson is saying to them, and it's generally saying that does it, we don't do a lot else. We don't take dance for them and we don't give 'em a massage and we don't do any of these other things that we might consider doing. We're pretty much in the saying business when it comes to sales, fortunately saying is enough to get some motion in that other person's body, but for the buyer, [00:07:00] the value shows up in what is really a feeling of possibilities, a feeling that, hey, this could go in a direction that's worth taking another step. And that's really interesting because sales is all about management of uncertainty.
And when we're in a theory of constraints world, there's this big question which is, well, where's the bottleneck? Right? Where's the constraint? And the answer as we start in a sales relationship from the buy side is, [00:07:30] I don't know, it's your job as the salesperson to guide me toward my constraint so that I have a feeling about it that includes the following. Oh yes, there it is, and we can do something about it. We can do something about it. And maybe it's just, I can do something about it. Thanks for educating me, but we can do something. When it comes to delivery, what's the equivalent of delivery and sales? So the value is created inside me as a buyer, and [00:08:00] it's an emotional state. It doesn't have a lot of intellectual qualities to it. I just feel like here's somebody who seems to be an expert and they seem to be on my side.
And we know from Oren's work, the stuff that happens within a pitch helps the buyer to get to the point of saying, yeah, this is an expert and they're on my side with the flash roll establishes you as an expert and the kind of offer, the fact that you can help that person, show them how to get through [00:08:30] the buying process because you understand it well, that shows you're on their side, you're going to show them sort of the easy way, but then you actually have to do it. And I think a lot of sales folks can talk that game that gets somebody to feel right, but as the steps start to be executed, then the question is, well, we still don't know where the constraint is because a sale is, this is where manufacturing breaks down as an analogy. [00:09:00] So Gold Wrap wrote a very, very good book that I think that most folks don't dive into very far.
So everybody's into the manufacturing analogy. I love the book Critical Chain, critical about projects, and it basically says this, I'm going to paraphrase it badly. Go read the book, don't listen to me now, go read the book and don't listen to me. But having stuck around this long, you're listening to me. So listen to me, and this sounds a little [00:09:30] obstru, but just bear with me. The constraint on a project according to Gold Rat is the critical path of the project itself. So you lay out the steps and the critical path is like, this got to happen and this got to happen, this got to happen, this has got to happen, or you don't get there. So actually in a sense, there's that tie between the critical path and strategy in a business. Strategy is a set of steps that if we take a step, it reduces the cost and the risk of taking the next step [00:10:00] that gets us closer to our goal kind of sounds like a project we complete part of the project, it gets us closer to with regard to risk and cost the next step, which gets us to the next and the next and the next.
One of the things that is so interesting to me and utterly ignored by most folks in sales, and yet it makes or breaks almost every deal is the feeders. So the critical path is what you must manage, and one of the [00:10:30] ways you manage it is you pre-build the inventory that it needs to consume. So say you have a contract that you're going to have to get to at some point, a really smart thing to do is to pre-build everything about that contract, including the specifics you're learning along the way. So when you get to that point, the cycle time between, Hey, we need this contract to move forward in a physical form, it might be a DocuSign, it may be a Word document or whatever, [00:11:00] but we need it. Oh, do we have to go make it? Now that introduces cycle time and brings Murphy into play.
Murphy's law is going to always prevail over time. And the critical chain, we're told, Hey, take the last entire third of the project and just make a buffer. Don't buffer the individual steps buffer the entire last third of the project because Murphy's going to show up. But the way we fight Murphy is to pre-provision the feeders [00:11:30] and a contract's, an example, a demo schedule as an example, having a resource that you've pre briefed rather than briefing them at the last second so they can help on a deal as an example. And I think great salespeople know how to manage the feeders that are coming into the critical path while they personally manage the critical path itself. We often just say to salespeople, get a next step, get a next step. But what if the next step requires something that comes in from the side? [00:12:00] Did we have it staged? Is it ready to go? So that's the execution part to me.
No, I love that. One of the quotes that Rami put up for his father is a great value does not sell itself. And when you look at the steps that you just outlined here, how many times have we spoken about the product folks? We'll build something that they think is ready for the market, throw it over the fence [00:12:30] to the sales organization and the sales leaders get frustrated at the sales reps because they overhired to account for the quota that they need to hit on their spreadsheet to deliver to their board. And so I'm managing by a spreadsheet and say, Hey, I have five reps. I'm over spreading the quota, so really all I need is three of 'em to hit 80% and I should hit my number. And then when all of 'em hit 40 or 50%, then they start to panic and then they say, wait a minute, this product [00:13:00] is good enough to sell itself.
And I think part of the realization, certainly from talking with you all these years is that quote from Proust, I think it is, he says, the real voyage of discovery consists in not in seeking new boundaries or new landscapes, but in having new eyes. And when you can go into an organization and not seek new landscape and boundaries, [00:13:30] but just have a fresh set of eyes on this and math of sales, breaking it down to the ludicrous conversation, conversion rate, demos per hour, right? The epiphany that all these things we've talked about all over these years is those are new innovations, if you will, in our space, in our sales space just by having new eyes.
Yeah. Well, novelty is a very inexpensive way to get option value, novelty of perception [00:14:00] of somebody else's point of view. You don't have to do much. It operates in parallel and everyone has an opinion, so they give it to you very inexpensively, unless they're an expensive consultant. Some people come in, they give you the really great stuff. I'll never forget being in a room where Jeffrey Moore walked in and gave us the most valuable two days of consulting, which boiled down to this, you guys are not across the chasm. You're a pre chasm company. Your product is pre chasm, adopt a pre [00:14:30] chasm strategy. Now, he could have just said that that would've been straightforward, but it had to be a new set of eyes that were opened in us. Our eyes had to become new. That's what great consultants do, great teachers is they give you new eyes. And we could tell we had new eyes. We started having arguments about stuff we didn't argue about before we had disagreements about the non-obvious.
Well, let's talk about that because I think this is one that you've certainly [00:15:00] waxed on many times and that is dear to the folks in the theory constraints is the concept of inertia. So I want to get a couple of riffs from you on inertia and that in business we sometimes oftentimes too, oftentimes act in the same way even when we need to change. And we're caught in this inertia. And you had said something very wise to me several times, is that the [00:15:30] best breakthroughs happen when you are stuck,
But yet you talk about Jeffrey Moore coming in and this new fresh out of eyes. But what do you have to say when certainly a lot of the businesses that you deal with that call you in, they're arguably at a state of inertia. They need a force to act upon them, to get them in motion oftentimes, and they're out of novelty. They have no more novelty left in the [00:16:00] tank to create the illusion of motion, and they're stuck with their board and their numbers. So what do you do in those situations? And do you agree that a lot of businesses that are in this state of sales, they're going to hire more sales folks or they're going to do all these other things, but in essence they're really at the state of inertia?
Yeah, inertia is stuck, I think are really related to each other because when we're, first of all, just to remind anybody who didn't catch whatever episode we talked about, the three states [00:16:30] one can be in companies are in these states often, which is you're either in flow, which is rare or wonderful and just stay there or you are stuck, which is the hardest one to recognize. You're stuck. That means you need to learn something to move forward. You don't need to do something to move forward. Now, you might need to do something to learn something, but your issue is lack of knowledge. You don't know what to do. And then there's the last one, which is waiting. Waiting [00:17:00] is very rare. Waiting is actually what critical chain is about, is don't put in a state where you're waiting. If you could have avoided waiting by building a feeder that is staged early, the problem with being stuck as a social problem, and it's a problem of recognizing that it's time to put your self-image aside just a little bit, and the need to be seen as all knowing and admit that you're not knowing [00:17:30] because this is the obvious problem of being stuck in.
And the problem of inertia come down to the same thing. Why do we have inertia? Well, we repeat what isn't working because at least we're acting knowledgeably. We're acting like we know what's going on, and our reputation is worth way more to us than any results. There is nobody in business except for maybe Elon Musk who says, reputation be damned. I'm just going for it. Right? That's [00:18:00] actually the characteristic of these people who produce these astonishing things. The Steve Jobs is the Warren Buffets, right? Do you think Warren Buffet cares about his reputation compared to just making great investments? He writes that brilliant letter every year that looks like he cares about his reputation, but in fact, it's a means for him not to have to care about his reputation because he's basically laying out transparently how he thinks. And his reputation, therefore, is of somebody who lays [00:18:30] out transparently how he thinks, and you can trust him.
And therefore, if you want to buy a share of stock, which is now worth, God knows how much in his company, well, you can go ahead and do that. And by the way, he's not waiting for you to do it. He's fine if you don't. So those two are really together. I think the main role of somebody from the outside and only somebody from the outside can do this, by the way, no man is a prophet in his own country. The job of a consultant is to come in [00:19:00] and allow the team to recognize, especially their leader, to recognize we're stuck. And that's okay. So the first thing the consultant really ultimately does is says, look, getting stuck like this in whatever language they use for it is pretty much inevitable. It would be weird to be in flow forever, and it would be strange to be waiting and not doing anything.
So you're doing the same thing over and over. It feels like progress, but you note the numbers say it's not progress, [00:19:30] and you're tired of telling yourself stories about how it's progress when it's not progress. And so you're stuck. And now let's step back, get a little bit of slack, and in that slack we'll do something that corresponds to learning. Now, one of the problems with different kinds of companies is like our company, we're bootstrapped. So a bootstrap company like connect and sell never feels stuck because every day [00:20:00] you're off selling for two purposes. One is the simple-minded purpose, I'll call it the banana stand purpose, got to sell enough bananas to keep the lights on or keep the permit. It allows us to stand here on the corner and sell bananas. We have to pay the tax. We have to, I don't know, pay the protection money, whatever it happens to be.
The other one is, but wait, we're going somewhere. We're going somewhere. And that's [00:20:30] the reason the bootstrap companies are so difficult and also so admired when they pull it off is how do you go somewhere when you're also just trying to keep the wheels on the bus? That's a tricky thing. And it comes down to just recognizing you're stuck faster. There has to be an element of what feels like a little chaos at the edge, which is really the exploration of your stuckness to get you out. You can't hire a consultant every time you're stuck. Love to
And these bootstrap companies like you and I and have had, and I think all of your companies and all my companies have been relatively bootstrapped. Occasionally, if you get vc, you just spend it like drunken sailors and high mountain blueberries and Brazilian te Quin tables and all the necessities of life. So you think, [00:21:30] but you talk about this innovation, Chris, that companies have go through, especially as banana stand companies, where you have this expansion and you have this convergent knowing when to do this and knowing when to do that. How do you still focus on knowing which limitation, which constraint is the one that's holding your business back a lot of noise. You still have to hit payroll, you got to hit [00:22:00] your cash number, you got to still grow. And you as, again, any devotee of this podcast knows is that if you're a c e O and you're still not selling, that's a problem at least several times a week on the phones. So how do you balance all that knowing that job says it's saying no to a thousand things. There's a constraint. You know, want to kind of exhaust the novelty factor your pre chasm. How do I innovate to determine what is my guiding true north to know [00:22:30] that I'm on the right path?
It's a tough one. I think the main thing that we need to do, if we want to innovate, we have to innovate. We have to innovate just means doing new stuff that makes a difference. So if we just keep doing the old stuff, our issue is not that the old stuff will stop working. Our issue is that somebody else will figure out the new stuff. And in modern markets, unless you have physical control over your market, I sell hot dogs in Northeast Anchorage [00:23:00] on Tuesday afternoons maybe, but somebody will come along and go hotdog and brats. Oh, brats beer. So those are innovations in that kind of business, and it's difficult to control markets, and this whole program is about controlling markets. So if you don't innovate, your real issue is somebody will, and when they do, they'll do something that you will retreat from.
This is the whole innovator's [00:23:30] dilemma problem. That is if you're first, you're the innovators, the innovator. I think it's funny, I probably said this before, folks read Clayton Christensen's book, the Late Great Clayton Christensen wrote a book, the Innovator's Dilemma, and then some others that were the solution and so forth, and they think, oh yeah, the new guy's the innovator. That book is about you are the first guy, you're the innovator, and now you're going to be attacked by a disruptor. So if you're first, [00:24:00] we were first in this industry with the push a button, talk to somebody thing, we are ripe for disruption because whatever we're doing is whatever we're doing is more than is required because we had to do things and do other things to do other things. And they accrete, you don't throw away very fast. So jobs used to throw things away with a certain ferocity, I would say, and that's when he rejoined Apple. Somebody said, well, what's going to happen? [00:24:30] I said, A whole lot less is going to happen than you think and one new thing's going to happen. You didn't think of. Yeah,
The fact is there's a reason the theory of constraints itself is hard to apply in business, and it's because it's exactly this thing about the thousand things. Your business has one constraint, one a system, and systems can only have one constraint. [00:25:00] This is what everybody hates about the theory of constraints. They hate it viscerally. It says this, everybody else has got to keep on keeping on. While, by the way, if you're really clever, very inexpensively building some inventory of things you know how to do, should it be your turn? Should you become your organization? What you do becomes the constraint. So you have this preparatory work to do that has no payoff whatsoever. Now, [00:25:30] if you were to apply it, it doesn't move the needle because you're not the constraint. So you're suddenly politically impotent hunt because you're not the constraint. And a wise company finds the constraint, characterizes the constraint, understands it's cycle time, it's throughput, it's quality, figures out how to invest in it, what the investment would yield, does an experiment to find out if that's in fact true and then goes and makes the investment widens, the constraint flow goes through and the constraint moves one way or the other.
It moves downstream [00:26:00] because they can't handle it down there or moves upstream because it sucks down in all the inventory that you had that you thought was so great and now you're out of inputs. Right? Okay, so they're doing that. Who likes it? Who does it make look good?
Well, if you're under the microscope, at least you're getting attention. Yes. If you're not, you're feeling neglect. And the politics of attention and neglect are highly asymmetric in [00:26:30] a company with regard to folks feeling about their own future. Therefore, the theory of constraints always is rolling a rock up a hill, up a hill of influence, politics, and how hard is it to sabotage the notion that there's only one constraint? So the standard fight against the theory of constraints in sales or in business is this, no, no, no. There's many constraints. Well, mathematically, there can only be one [00:27:00] in some curve, somewhere. There is one minimum. I mean, trust me, it may be a little difference, but there's one, and folks hate it. They hate it. It makes them feel insignificant unless they are at the point of constraint, at which point they feel under too much pressure.
Really? That's fascinating. That's fascinating. So that's the political ramifications, that's the political reality, the [00:27:30] psycho reality of identifying a constraint. It's difficult to identify it enough on a spreadsheet, but now that you have these personalities, right, department heads, marketing production, product delivery, finance capital, whatever it is, that makes it even more of a political landmine, which probably makes it easier for an outside consultant to navigate that versus doing it internally.
[00:28:00] Exactly. And one of the structural ways to address this is divisionalized instead of departmentalized. So we seek leverage in departmentalization, this department's going to take care of this function. Well, one of the problems with that is now you only have one thing in the company to work at, which is whatever the constraint is, it's now in one department, if you divisionalized and accept the inefficiency [00:28:30] of having some replication of function, you have a joy that shows up incredible power. You get two constraints. It's not one system, it's two systems. Divisions operate sufficiently independently that each one gets to act like its own company. And if it has a supplier upstream called the corporation or downstream called the corporation that it buys on transfer prices or whatever, then well, that's its problem. It's not the [00:29:00] corporation's problem. So you end up with this very interesting situation, and there are extremist companies in this regard.
Thermo Electron is one of 'em. Three M is one of them companies that basically said, we're going to divisionalized at such a fine level that we're just going to absorb the inefficiency through the power of what is essentially an odd thing on the balance sheet, which is the power of innovation. And we're going to just have faith [00:29:30] that the innovation is going to sparkle here and there sufficiently that it's going to allow us to be a little less efficient when we seek efficiency. We drive multiple systems down to one system. If you and I decide, oh, we're not going to do this podcast anymore like this. What we're going to do is the podcast where we both get together and agree about everything about the podcast, that it's podcast core from blah, blah, blah, blah, blah. Well, we only have one constraint in the podcast at that point.
[00:30:00] We better agree on it. And if it makes you feel unimportant or me feel unimportant, or Susan or Austin or whoever, you got a problem. So we have a pipeline where we come in independently, we talk, each one of us gets talk as much as we want, although I talk more than you do, Austin does. His thing is, as long as a podcast shows up, a recording shows up, there's work to do. And that's interesting because that [00:30:30] allows his and Susan's business to move to turn the crank that one time. That's a key input and the thing kind of works, right? So there's a tendency, and this happens in m and a. So in m and a, the big mistake that folks make now in m and a is to consolidate the C R M systems. It's the standard error. It's like the standard model in physics has all these funny particles and all this.
The standard error in mergers and [00:31:00] acquisitions is this, well, since our thesis is we're going to cross-sell two kinds of m and a, but one of them tends to involve cross-sell, right? One of 'em is tuck-ins, and you just get market from buying customers. And the other is the cross-sell thesis. So in the cross-sell thesis, which is the power thesis, we go, oh, we're cross-sell this company, we buy its products are going to be sold to our big base and vice versa. Isn't that great? [00:31:30] Well, we better consolidate our CRMs because until we do that, we have the same customer representative, multiple CRMs. Well, as soon as you consolidate your CRMs, what you tend to do is to create a situation first after a lot of time and expense that yields nothing. You create a situation where you're now bottlenecked somewhere inside that C R m and nobody knows how that works, and it's no longer allowed to change.
It [00:32:00] was so hard to get it to where you wanted to get it. That's where the sunk cost investment issues. So the gamblers paradox or fallacy or whatever you want to call it, tend to come in. It's like we put so much into that, we can't change it for sure. So it's a huge mistake when you buy a company. One thing you should never do is consolidate the C R m, let the C R M stay with that company, figure out cross-sell through a friendly relationship between now two companies that happen [00:32:30] to be together and by the way, be prepared to pay compensation to multiple salespeople. Or before you had one, that's the tax you're going to get ready to pay it.