Editor’s Note: Nearly fifty years ago, a young Ram Charan was brought in by GE to create a Crotonville playbook for their managers on how to lead through that period, as they hemorrhaged cash amid soaring inflation. Now, nearly two generations of managers have literally no idea what it’s like to operate in an inflationary environment. And that has Ram, one of the world’s best-known and most widely respected advisors to C-Suites and board deeply concerned.
So we’re working on adapting his inflation playbook for the C-Suite and directors for the current moment. We’ll have much more from those sessions soon, and Ram has agreed to teach a masterclass for managers on March 24 (please join us), but—especially given Thursday’s numbers—we didn’t want to wait to share some of his ideas, including the essential issue of changing the psychology of the sales force. Here’s what he as to say:
- Pricing must not be controlled by the sales force. “The dominant psychology of the sales and marketing departments in good times is to capture as many customers as possible and make every sale that is possible, often without thinking too hard about whether the sale is profitable or the customer is sound. They have a psychological aversion to raising prices, the result of frequent customer pushback and demands for discounts.”
- In an inflationary period, delaying price increases can be a disaster. “The company needs a pricing philosophy and methodology that shows with precision when, where and by how much to raise prices, fully cognizant of the consequences to volume, market share, revenue and margins. This will require close consultation between sales, the chief financial officer and CEO.”
- Start by making sure the executive vice president for sales and marketing is aboard with leadership’s views and plans. “If they can’t understand what you’re after or don’t grasp the urgency, the CEO will have to make a change—fast. Many of them have not lived through this; they will find it very difficult to have the courage they’ll need to make tough changes, like shifting their people’s KPIs to focus on raising prices and gaining cash or being more directly involved in collecting receivables.”
- The CFO and the CEO can’t expect these departments to change on their own. “They have to create training sessions to help get the marketing and sales people prepared to operate in this new environment. For example, one retail company I work with was having a difficult time increasing prices selling to Walmart, one of their biggest customers. So, we got a former Walmart executive to come and roleplay with the team, showing them how to increase prices. This is the kind of work you’ll need to do.”