• October 1, 2007
  • By Anupam Agarwal, associate principal, Silicon Valley office, McKinsey & Co.

Keeping Pipeline Insights Actionable

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While many companies continue to invest heavily in CRM, most don't realize the best return on those investments. Sales pipeline management is one area where, with the proper approach, companies can drive incremental sales and margin growth. A recently conducted McKinsey survey of B2B sales executives indicated a potential for a revenue increase of between 2 percent and 10 percent through improved sales pipeline/funnel management.

There are two keys to achieving this growth. The first deals with developing an accurate sales forecast, based on actual opportunities in the pipeline, to identify any potential shortfall. The nature of that gap will help shape the required demand generation initiatives. Data captured in a systematic way can play an important role in ensuring that forecasts are accurate and that sales and marketing resources are deployed toward the right demand generation initiatives.

The second key -- and a closely related one -- is optimal opportunity management, which refers to maximizing the outcome from opportunities already in the sales pipeline. These improvements are measured via better win rates, increased velocity of deals through the pipe, or improved overall deal size. Greater visibility helps to prioritize sales management focus and to align sales resources against the right opportunities.

In a typical example of improved sales pipeline management, key improvement drivers might include increasing the number of new opportunities, increasing the average deal size, decreasing overall deal cycle time, or increasing win rate. Several obstacles must be overcome: a sales culture focused on execution rather than analysis and planning; a lack of strict cadence for sales pipeline reviews; limited actions from sales management based on pipeline data; and insufficient emphasis on improving opportunity outcome based on pipeline analysis.

A two-pronged approach is called for. Start with short-term value creation: Analyze available late-stage sales data to identify opportunities to immediately improve the results of bottom performers. Follow that with institutional capability-building to provide sustainable improvements to the sales organization.

Analyzing variance in sales rep performance can help determine the roots of that variance: internal (addressable) factors that can be improved by sales rep actions (like product bundling, or discounting), and external factors that are more structural (industry/geography, for instance). There are specific moves to address the internal factors in order to create short-term value. These include bridging performance gaps by leveraging internal best practices, resizing sales targets, pushing greater visibility in sales opportunities, and rethinking overall sales strategy. These actions must be coupled with active oversight of sales rep performance to identify areas that require management support.

Institutional pipeline management aims to build systemic capabilities to proactively manage the sales pipeline. Actions are taken across the traditional areas of people, processes, and tools, driving toward a culture that actively uses the pipeline to maximize sales throughput. Example actions include aligning sales incentives to drive increased deals through the pipeline; instituting a structured pipeline-review process; driving improved demand planning and forecasting using pipeline data; and tracking a consistent set of metrics on the health of the pipeline at all levels.

Most companies have the basic CRM technology in place to embark, with minimal incremental investment, on a program to improve sales performance via pipeline management. In particular, the systems already have a lot of the data but most companies do not have the right reporting and tracking applications. Impact is achieved by using existing sales data to identify actionable insights into sales rep performance and using these insights to develop systemic pipeline management capabilities.

Anupam Agarwal is an associate partner in McKinsey & Co.'s Silicon Valley office. He can be reached at anupam_agarwal@mckinsey.com.

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