Let’s revisit the fact pattern found at public companies with a market cap >$75M:
• Top down, risk based approaches to SOX compliance free time to monitor the effective operation of those controls that prevent/detect material weaknesses over financial reporting.
• SOX control activity counts are declining.
• SOX requires the adoption of a framework (e.g. COSO).
• COSO requires the monitoring of control activities impacting financial reporting.
Sadly, monitoring sales activities isn’t required by SOX.
The benefits of monitoring sales activities include:
• Early identification of sales best practices worthy of replication
• Ability to identify/reward the 20% of the sales force producing 80% of the results
• Ability to identify the bottom 20% of the sales force in need of training
• Alerting management to training needed by the sales force
How closely should sales activities be monitored? In SOX, control deviations should occur less than 5% of the time. Contrast this with most sales monitoring mechanisms and you find inconsistent (ineffective) operation of the behaviors that lead to sales (antecedents). The best sales monitoring I’ve seen includes daily/weekly monitoring of the antecedents to revenue growth.
Antecedents defined: those activities (meetings held, calls made, accounts opened) that result in increased revenue. Antecedents for products/services with longer sales cycles generally include counting the number of interactions held with the prospect and posting it for all to see (7 meetings are needed to make pursue/don’t pursue decisions).
Like COSO, effective operation of any activity is enhanced by training and monitoring. In sales vernacular, this means coaching and reporting. Let’s revisit these concepts.
COACHING:
• Coaches push the sales force to sell.
• Coaches solicit common objections originating from accounts and prospects around why they don’t need or want a given service.
• Coaches are aware of service offerings, what is selling and how these are sold in the marketplace.
• A coach’s role includes:
o Understanding how the sales force approaches the marketplace
o Collecting objections provided by prospects and current customers
o Showing how to overcome objections
o Holding a series of focused, targeted calls with the sales force assigned to all program accounts and pre-identified prospects on a weekly/bi-weekly basis.
• The coaches drive monthly or bi-monthly sales campaigns to gauge how program accounts and prospects respond to a new service offering by region. Coaches identify program accounts and prospects that match defined success criteria and discuss how to introduce new services.
• Coaches hold the sales force accountable for bringing ideas to program accounts and prospects by following up with individual sales people. They ask questions around 1) why a given offering is not relevant at the program account or prospect and 2) why the offering is not getting sold?
REPORTING:
• Daily or weekly reports are sent comparing the aforementioned antecedents. Voicemails to the salesforce recognize and name successful sellers. The individual/regional reports include:
o # of meetings held with individuals at program accounts and prospects for a given product/service
o $ revenue generated
• Results are published regionally / nationally on a weekly basis via voicemails by Leadership to link sales metrics to an individual
• Winning individuals or geographies receive special recognition on a quarterly/annual basis (e.g., dinner with President in NY)
Questions & Actions
1. Has your company redirected the effort spent monitoring control activities over financial reporting to monitoring the behaviors of your sales force?
2. Do you have a tactical plan to actively monitor the identification, pursuit and closure of sales opportunities?
3. How frequently does Leadership assess the success of its sales force? Specifically, the success of expanding services to those accounts that produce more than 80% of the company’s revenue?
4. What mechanism exists to identify and replicate the behaviors of successful sellers?
5. Do you know which techniques are most successful in closing deals?
6. Do you know the common objections to selling your product/service?
7. Do you brainstorm ways to overcome objections?
8. Do you rehearse these?
Friday, November 12, 2010
Thursday, August 12, 2010
Left Brain Right Brain
Why do we find comfort double teaming audit work and single teaming sales calls?
People that love math get a sense of achievement when they solve problems and get the right answer. The certitude, the exactness, and the feeling of being right bring subsequent benefits when the math student learns how accurate he was.
Taking this to the SOX/Sales realm, the act of testing controls provides a similar sense of achievement, the sense of getting the right answer. Understanding this motivating force leads us to blog entry #3.
The problem is that some companies still test more controls than they are required to test under 404 requirements. With AS5, external auditors no longer render opinions on the adequateness of management’s testing. Instead, they render an opinion on whether controls that prevent/detect a material weakness are designed and operating effectively; however, legacy AS2 efforts are difficult to tear down unless other activities are defined for the control testers. Overcoming the motivation to test and retest the same control is difficult when the current year procedure is “how we did it last year”, a gratifying sense of achievement awaits the tester because no alternate activity has been defined.
SAS65 and AS5 describe the situations in which the work of others may be relied upon; the scenario where we don’t have to doubly test a control activity. The SEC 404 Guidance for Management describes how the amount of evidence to support Management’s 404 assertions may vary, in some cases evidence can be obtained simply by walking around.
In testing SOX controls, the best practice is to maximally rely on the work of others unless there exists a specific risk or qualitative/quantitative factor of concern. In short: single team the audit.
Salespeople hunting prospects (potential customers matching the profile of your best customers) get no sense of achievement like the smart math student. Because most prospects don’t buy when asked the first time, there is a great tendency for sales professionals to hunt prospects alone. Being rejected or receiving a “no” answer is so much easier when one is by himself.
Despite lower sales success rates, humans tend to hunt their sales prospects alone.
Selling products/services by more than one person is a best practice. Double teaming communicates the benefits and the “asks” better than single teaming. Everytime.
Bank tellers double team instinctively because banks are designed with a counter full of bankers working side by side. The double teamers outsell the lone rangers by wide margins.
In selling, the best practice is to double team every sale unless the salesperson is simply responding to a customer request for the product/service. In short: double team the sale.
Questions & Actions:
Can the amount of controls testing work relied upon by your auditor be increased? Review SAS65, AS5 and the SEC Guidance for Management to identify the opportunities to reduce the amount of double auditing taking place over your 404 controls.
Does your sales force double team every prospect? Double teaming ensures the benefits are completely described to a prospect and ensures younger professionals see how it’s done all while maximizing revenue growth.
People that love math get a sense of achievement when they solve problems and get the right answer. The certitude, the exactness, and the feeling of being right bring subsequent benefits when the math student learns how accurate he was.
Taking this to the SOX/Sales realm, the act of testing controls provides a similar sense of achievement, the sense of getting the right answer. Understanding this motivating force leads us to blog entry #3.
The problem is that some companies still test more controls than they are required to test under 404 requirements. With AS5, external auditors no longer render opinions on the adequateness of management’s testing. Instead, they render an opinion on whether controls that prevent/detect a material weakness are designed and operating effectively; however, legacy AS2 efforts are difficult to tear down unless other activities are defined for the control testers. Overcoming the motivation to test and retest the same control is difficult when the current year procedure is “how we did it last year”, a gratifying sense of achievement awaits the tester because no alternate activity has been defined.
SAS65 and AS5 describe the situations in which the work of others may be relied upon; the scenario where we don’t have to doubly test a control activity. The SEC 404 Guidance for Management describes how the amount of evidence to support Management’s 404 assertions may vary, in some cases evidence can be obtained simply by walking around.
In testing SOX controls, the best practice is to maximally rely on the work of others unless there exists a specific risk or qualitative/quantitative factor of concern. In short: single team the audit.
Salespeople hunting prospects (potential customers matching the profile of your best customers) get no sense of achievement like the smart math student. Because most prospects don’t buy when asked the first time, there is a great tendency for sales professionals to hunt prospects alone. Being rejected or receiving a “no” answer is so much easier when one is by himself.
Despite lower sales success rates, humans tend to hunt their sales prospects alone.
Selling products/services by more than one person is a best practice. Double teaming communicates the benefits and the “asks” better than single teaming. Everytime.
Bank tellers double team instinctively because banks are designed with a counter full of bankers working side by side. The double teamers outsell the lone rangers by wide margins.
In selling, the best practice is to double team every sale unless the salesperson is simply responding to a customer request for the product/service. In short: double team the sale.
Questions & Actions:
Can the amount of controls testing work relied upon by your auditor be increased? Review SAS65, AS5 and the SEC Guidance for Management to identify the opportunities to reduce the amount of double auditing taking place over your 404 controls.
Does your sales force double team every prospect? Double teaming ensures the benefits are completely described to a prospect and ensures younger professionals see how it’s done all while maximizing revenue growth.
Thursday, August 5, 2010
Count What Matters
On my 6 mile run this morning I was reminded again of the notion that “what gets measured gets managed” – Peter Drucker. If I don’t count the specific behavior that leads to a desired result then I don’t understand said activity.
The same is true for testing SOX controls and selling products/services.
For example, the operational frequency of a control activity determines the number of samples selected for testing. If a control occurs many times a day then the test sample size is 25 selections; if it happens daily then the sample size is 15 selections; and so on.
To play on Drucker, measuring the frequency of an activity is necessary to manage the level of effort spent testing operating effectiveness.
When selling products/services is the activity, I understand and count the antecedent to selling. If I’m not counting antecedents to a sale, then I’m not closing any deals. In my world, the antecedent to a sale is directly or indirectly asking a prospect (potential clients who match the profile of my best customers) for the business.
Pareto’s 80/20 rule guides me. 20% or fewer of the control activities contribute the most assurance to preventing 80% of the causes of a material weakness. 20% of my prospects generate 80% of my sales.
Generally, business processes with large numbers of control activities are candidates for finding time to redeploy against sales efforts. Processes like payroll (with a lower risk of material misstatement) offer the best opportunities for reducing on the number of controls and redeploying related effort elsewhere – to activities like spending time asking for the business.
Questions & Actions:
1. When was the last time you counted the number of control activities in the processes impacting financial reporting? The control activity count may be higher than you think. Look for activities that can be eliminated from your population of controls to save time the amount of time spent testing these.
2. How frequently do you ask for the sale in a meeting or during eminence building activities? An old friend of mine said that a qualified prospect needs to say “no” 7 times before they are no longer a prospect. Identify your prospects that haven’t said “no” 7 times and ask for the business, again.
The same is true for testing SOX controls and selling products/services.
For example, the operational frequency of a control activity determines the number of samples selected for testing. If a control occurs many times a day then the test sample size is 25 selections; if it happens daily then the sample size is 15 selections; and so on.
To play on Drucker, measuring the frequency of an activity is necessary to manage the level of effort spent testing operating effectiveness.
When selling products/services is the activity, I understand and count the antecedent to selling. If I’m not counting antecedents to a sale, then I’m not closing any deals. In my world, the antecedent to a sale is directly or indirectly asking a prospect (potential clients who match the profile of my best customers) for the business.
Pareto’s 80/20 rule guides me. 20% or fewer of the control activities contribute the most assurance to preventing 80% of the causes of a material weakness. 20% of my prospects generate 80% of my sales.
Generally, business processes with large numbers of control activities are candidates for finding time to redeploy against sales efforts. Processes like payroll (with a lower risk of material misstatement) offer the best opportunities for reducing on the number of controls and redeploying related effort elsewhere – to activities like spending time asking for the business.
Questions & Actions:
1. When was the last time you counted the number of control activities in the processes impacting financial reporting? The control activity count may be higher than you think. Look for activities that can be eliminated from your population of controls to save time the amount of time spent testing these.
2. How frequently do you ask for the sale in a meeting or during eminence building activities? An old friend of mine said that a qualified prospect needs to say “no” 7 times before they are no longer a prospect. Identify your prospects that haven’t said “no” 7 times and ask for the business, again.
Monday, August 2, 2010
The Holy Grail: Leverage your SOX skills to save money and drive sales
This blog is most likely not for you. I think there are only about 1000 people that want to reduce the costs of Sarbanes-Oxley requirements while simultaneously redirecting internal talent to projects that drive shareholder value by increasing sales.
In my experience, a few of the obstacles include:
Please use your personal name or initials and not your business name and do not put your website in the comment text as both will come off like spam. Have fun and thanks for adding to the conversation!
In my experience, a few of the obstacles include:
- fear of doing things that might cost a person his job;
- uncertainty with focusing on debatable activities that drive shareholder value; and
- inexperience with practicing how to get out of one's comfort zone.
- Why can't the skills obtained through the course of preparing for SOX be used to drive sales?
- Where are the allowable "loopholes" in the regulations that allow for a company to implement internal controls over financial reporting in the most efficient way possible?
- How to motivate those charged with SOX to read the guidance as passionately as someone might read religious literature [or the last thing you read with intense interest]?
Please use your personal name or initials and not your business name and do not put your website in the comment text as both will come off like spam. Have fun and thanks for adding to the conversation!
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