Australpharm distributes pharmaceutical products to medical practices throughout Australia by means of a sales force that visits doctors in their practices on a regular basis. In the past two years the company has successfully introduced electronic-commerce practices into its purchasing arrangements with suppliers. Pharmaceutical products are ordered over the Internet, using an on-line system that handles all orders, confirmations, and delivery and invoicing information.
In reviewing the company’s latest six-monthly financial results, Martin Drugrich, the managing director, was pleased to see a near 10% lift in gross profit. Digging deeper into the figures and his finance director’s analysis, he saw that two big contributors to the increased profit were a higher turnover of products and lower administration costs in the purchasing group. Further examination of the figures showed him that profit could have been even higher but for high sales distribution costs.
In a meeting with his purchasing manager, Drugrich learned that products had been ordered and delivered much faster through the new e-commerce system, and because the system now covered most of the stock, it enabled a faster response to meet orders procured by sales staff. Furthermore, because all processing was handled on line, and much paperwork had been eliminated, several positions in the purchasing group that had fallen vacant in the past year had not been filled.
Conscious of the share options allocated to him on a performance basis at the company’s last board meeting, and desiring to buy the new model BMW, Drugrich looked again at the high sales distribution costs. If these could be reduced without prejudice to the sales increases, then maybe he could meet his performance targets, and the BMW would be within reach.
Where is the problem?
In an urgent meeting with his sales director, Darren Sellaton, Drugrich asked him why sales distribution costs had increased. Sellaton had the answer ready, claiming he had had to pay more commission and take on more staff in sales and administration. The figures showed that his group had been gaining more sales over the last six months.
Drugrich was sceptical. He asked why more sales staff were needed in the field when the medical practices were being reduced in number because of consolidation into large medical centres. He also stated that the new e-commerce order-management system should be covering much of the paperwork of the sales administration staff.
Sellaton explained that although there were fewer and larger medical centres, the doctors were under greater pressure and kept his sales staff waiting longer. Many doctors were making the sales staff write orders and related paperwork on their behalf if they were to secure the order. As for the new computer system, Sellaton claimed it did nothing for the orders and paperwork that sales administration staff had to process. The new system took over just the ordering from suppliers by the purchasing group.
Drugrich was still unhappy. He told Sellaton that the situation had to improve, as they could not keep increasing the size of the sales force. A new system was needed.
Drugrich then asked Kerrie Wintel, his director of information services, to join them, and while they waited he asked Sellaton whether he had discussed with Wintel how sales staff could use the computer systems. Sellaton felt slighted that his explanations had not been accepted. He said that he and Wintel had spoken, but the estimated costs were far too high. And anyway, Wintel knew nothing about sales yet kept telling him how to change the way sales staff worked.
Improving Work Practices
When Wintel joined them, Drugrich asked her why the new order-management system still did not cater for the sales force.
Wintel counted to three before replying. Sellaton had been unco-operative in their discussions on how to introduce new technology to the sales force. He had resented her suggesting new of ways working with the computers and had balked at her cost estimates. All he had wanted to talk about was some system that his brother was developing. He had claimed that when it was finished, he would introduce it at a fraction of the cost she was talking about.
Carefully steering a neutral course, Wintel said that they could extend the system, but it would require developing new software and buying hand-held PCs for the field staff that would enable them to communicate orders remotely, and to access and update at any time their information on the latest products and stock availability.
Sellaton stated that Wintel has estimated it would cost millions for the 1500-strong sales force. He wanted to bring in his own system when he was ready, at a lower cost.
Wintel replied that the main cost would be the hand-held PCs no matter what system was introduced. She believed that the sales force would be able to visit more medical centres each day and get orders in faster, and so fewer staff would be needed. The task of sales administration could be halved.
Drugrich stepped in. He believed that the way forward was to examine some options and indicative costs, and to conduct a trial with some basic software in conjunction with a typical medical centre.
It was agreed that Wintel would prepare some draft options with indicative cost estimates on which a trial project could proceed. Drugrich asked Sellaton to find a medical centre that would be prepared to participate in the trial, and to negotiate arrangements for the trial with the centre’s medical director.
Negotiations with the customer
Sellaton reluctantly phoned some of the medical centres close to head office, to find one prepared to participate in the project. After a number of negative responses, he found one in which the medical director was prepared to meet him to discuss the proposal.
The next day at the Downtown Medical Centre he met Dr Bodyman, and outlined the idea of introducing hand-held PCs for use by Australpharm sales staff. Sellaton described how it would make Sellaton’s sales staff more efficient, and enable each to visit more medical centres in a day. It would also help the doctors, as they would have more information, and sales staff would produce the order on the PC without the doctor having to write it out. The doctor only needed to apply an electronic signature.
Dr Bodyman in response wanted to know how the medical centre would benefit. He could not see how the doctors would gain, because for some time visiting sales staff had been required to write out orders for the doctors to sign. Bodyman was sceptical about the security of electronic signatures. He felt sure that any new system, particularly a trial, would bring extra effort and cost for the medical centre. All the benefits would be for Australpharm. If the system brought reduced costs for the company, would a reduction in price be passed on to the medical centre? Would Australpharm be prepared to renegotiate the terms and fees of joint drug trials that were run with the medical centre? Until Sellaton could come back with favorable responses to these questions, he would not discuss the matter further. Bodyman’s parting comments related to patient care coming first, not profits for drug companies.
Sellaton left, musing that Drugrich and Wintel would have to think again.
How can Sellaton and Wintel work more co-operatively? Who should be responsible for introducing changes to the working practices of the sales force? Could Sellaton have approached the meeting with Bodyman differently? Should Drugrich, the managing director, have personally conducted the negotiations with Bodyman?
This case study was prepared by Bryn Evans
Eric Granger has been state manager for Mutual Community, the South Australian brand of National Mutual Health Insurance, since April 1998. He has worked for the past 30 years in the management of sales and marketing, with his own retail business then with Ansett Airlines, Servcorp, Medibank Private and Mutual Community (National Mutual Health Insurance).
The idea of a culture in which all staff at all levels treat their colleagues as customers, be they internal or external, is not new. Here, however, is a classic case of an organisation that believes the motivation is “what’s in it for the seller rather than the purchaser”. This case study shows how easy it is to slip away from this most basic of all selling principles; that assisting customers to achieve their goal is much more effective in the long run than the “sellers” imposing their will merely to achieve their own objectives.
Drugrich would have been more effective had he come at the initial interview from a perspective of “how can I get what I want by helping someone else get what they want?” Instead, it became a matter of the managing director imposing his will on the sales manager. One consequence of his approach was that Sellaton then took the same manner with his customer (Dr Bodyman).
It would have been better had Drugrich indicated to Sellaton that, by improving efficiency, sales and profit targets would be achieved and rewards would be more likely flow to him. Drugrich needed to give clear direction to Sellaton in order to penetrate his negativity and reluctance to change.
No matter what the personal views of individual managers are, people employed in areas of expertise should be allowed to work with autonomy. It should be made clear that sales managers do not determine which IT solutions are used, just as IT managers do not set the sales approach. The managing director’s role is to state clearly company policy. This is not to suggest that managers can abnegate their responsibilities to reach a solution. Consultation is vital to the process.
Managers at all levels should feel that their professional expertise entitles and authorises them to make decisions designed to achieve their customers goals.
Sellaton should have approached the meeting with Dr Bodyman differently. Sellaton expressed the objective of the meeting at its commencement: to reduce the costs to his company. There was no desire to meet a customer need.
The approach needs to be tailored to individual customers, all of whom have different personalities. This can only be done if we try to think: “What would I do if I were on the other side of the desk.”
Sellaton should have treated Bodyman as a sales prospect.
An excellent model to work from is Learning International Professional Selling Skills. It would have helped Sellaton take the approach by which he could find out his customer’s needs without even having to mention his own.
This model suggests that Sellaton begin by stating that Australpharm is interested in hearing Bodyman’s views on the administrative relationship with medical companies in general. Further probing would most likely uncover that Bodyman has difficulties of some sort for which Sellaton can offer solutions. Sellaton could suggest that these solutions be based on a trial of a new system using hand-held PCs.
This approach gives Sellaton the opportunity to present the process as one that will resolve expressed needs. The approach Sellaton in fact took was “I have a problem and I want you to help me solve it”.
The suggested approach has the advantage that you can always fall back on the other if it fails. The same cannot be said of the approach Sellaton used.
Drugrich most emphatically should not have personally conducted the negotiations with Bodyman.
The manager has two roles to play in this process:
- Discussing Sellaton’s approach, thus guiding and advising rather than taking over the process.
- Offer to be at the meeting in a support role but only if Sellaton so desired.
It comes back to allowing others to achieve their goals, which should also be those of the company.
Drugrich needs to help Sellaton and Wintel to work together more effectively by respecting their clearly defined roles and reinforcing the understanding that each is employed for their specialist skills. Expressions of confidence and clearly defined parameters for decision making would be a great start.
Stephen Covey, in his Seven Habits of Highly Successful People, refers to being pro-active by focusing on your immediate circle of influence, not the larger circle of concern. This means being solely engaged with the things you can influence and for which you are responsible. The word “influence” here refers to the ability to make the final determination. It does not mean you should be precluded from the decision-making process, just that the final decision will lie with others.
In this case, Sellaton should clearly understand that, despite his best intentions, the cost or type of on-line system is not in his circle of influence. Sellaton should expect Wintel to provide the solutions, not provide them for her.
The aim of the exercise is to reduce distribution costs without harming profit. It is clear that in order for that to happen, the working practices of the team need to be looked at. Drugrich wants to use e-commerce to reduce costs; and his investigations show that Sellaton is not moving down that path.
The responsibility for facilitating this process lies with Drugrich. The responsibility for instigating the process lies with Sellaton, and the responsibility for providing the tools lies with Wintel.
Richard Keeves is the managing director of Internet Business Centre, a Perth-based Internet-commerce consulting and development company. He has been working on issues relating to Internet business since 1994, and he consults to government, corporate and small-business clients throughout Australia.
Visit him at: www.ibc.com.au
The benefits from doing business on line are becoming evident in almost every industry, and yet some people are still trying to hold back the tide.
Many businesses suffer from the scepticism of “technophobic” senior managers, who mask their ignorance, inexperience and fear of computers by pointing to the successful customary ways of doing business. Denying the need for change blocks the search for new tools.
Opposing this are managers who love innovation and technology. Some are successful, but others have a poor record, getting caught up in technology for its own sake and failing to deliver on profitability and productivity promises. Fortunately Australpharm seems not to have suffered this way.
The e-commerce marketplace is moving quickly. Organisations must focus on developing effective business strategies to use on-line technology to improve services to customers.
The managers of Australpharm need to unite and examine the needs of their customers, and the benefits and value the company delivers.
Dr Bodyman was not opposed to the new technology. He simply raised valid points about its resulting benefits. He also raised relevant and important questions about security, although solutions to this problem do exist and this objection could be overcome quite easily.
Sellaton focused on what the technology could do for Australpharm rather than for its customers. He sabotaged the trial by treating Bodyman’s comments as confirmation of his own views instead of viewing the encounter as a research opportunity to enhance Australpharm’s service benefits.
Sellaton may not be technophobic, but he certainly has not welcomed the benefits that on-line technology may bring to the sales process. As manager of 1500 staff, Sellaton may well fear that his worth is measured by the number of employees in his department, rather than on its profitability and performance. If so, he is not likely to support any plan that may reduce the size of the sales department.
It seems that Sellaton lacks an incentive to make the company more efficient and more profitable. Drugrich is motivated by share options and a new BMW, but he seems to have created no such incentives for Sellaton. As such, Drugrich is at least partly responsible for the situation.
Drugrich could have personally negotiated with Bodyman, and this might have helped to set up the trial. However, it would probably not resolve Sellaton’s fundamental lack of support for the new technology. Until Sellaton understands the benefits to his customers, to the company and to himself, he will continue to sabotage the project.
By asking Wintel to produce cost estimates, Drugrich has created a situation in which Wintel and Sellaton will oppose each other, and has set them up for further confrontation. Sellaton and Wintel must work together, learning more about each other’s jobs and responsibilities. Sellaton needs to understand the new systems proposed by Wintel; and Wintel must understand the existing sales systems. Together, they need to develop mutually acceptable options, backed by full cost-benefit analyses and a strategy for the phased introduction of on-line systems.
As sales manager, Sellaton is responsible for changing the work practices of the sales force. If he does not “own” and support the new systems, he will probably not remain in the role.
Drugrich needs to sponsor the new technology carefully to ensure that the changes take place effectively despite internal opposition. Most importantly, he must ensure that the entire sales force, including Sellaton, understands the benefits that the new systems can bring to their customers, themselves and their employer. Ideally, they also need to share in the future rewards from increasing productivity.
The new system could be designed to allow customers to place regular standing orders directly on line with Australpharm. In time, customers may prefer to place all orders by that method. Clearly it would reduce sales administration and the need for such a large direct-sales force. The benefits of this approach will need to be passed on to customers, possibly with lower prices for users of the on-line ordering system.
Australpharm already has clear evidence of the benefits that e-commerce can bring to its bottom line, and the impetus for further improvements in the sales department will become unstoppable. The company must develop a comprehensive on-line business strategy, providing real benefits for its customers. Although this may not seem to be an urgent priority, it must be done before a new and far more efficient competitor emerges using on-line technology coupled with an attitude that is >much more customer-focused than the one adopted by Australpharm.