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Cases Businessland Computers, Inc.: What If We Automated Our Salesforce? 499 Businessland Computers, Inc.: nent, privately held company that specializes in build- What If We Automated Our Salesforce? ing PCs from multiple manufacturers and integrating them into customer environments by using an outside Bill Pfaff, Sales Manager for Businessland, was reviewing salesforce of 300. In addition, they provide customer sales performance and selling expenses from the past training, service, and telephone hotline support. fiscal period in preparation of a budget which was due The personal computer industry is very dynamic in a couple of weeks. At first glance, Bill was surprised to and has experienced rapid changes in technology and see that the company's total selling expenses were ap products that have a relatively short life cycle. By the proaching $300 million. In pursuing initial analysis, he mid 1980s, hundreds of manufacturers had entered noted two areas in particular that were quite disturbing the market and there was a scramble to sell hardware First, the average cost of a sales call had been increasing with little attention to applications, systems, or sup substancially in recent years to where it was near $300 port. There was an industry wide rush to establish during the previous year. Secondly, nearly 60% of the computer stores and retail outlets with the anticipation sales rep's time was spent in non-selling activities. Com that personal computers would ultimately be marketed pounding this was the company's profit trend which last similarly to that of refrigerators. In the latter part of year dropped to an all-time low ending at a loss of $25 the decade, a large number of those companies ceased million. Bill's thoughts centered upon some of his own to operate either due to failure, mergers, or acquisi- company's technology products. He questioned, tions. World sales of personal computers exceeded $150 billion in the mid 1990s up from $12 billion a "What if we were to look toward technology decade earlier. Similar growth occurred in the US as based solutions. Could Businessland develop new sales of $6 billion in 1985 exceeded $60 billion in 1995, sales systems to bring together data from many Sales of personal computers dwarf all other computer sources providing sales reps access to the most up- to-date information? How would the sales reps re- markets including mainframes which have plateated spond to it for that matter, how would Business at $50 billion annually land's clients respond to it?" The companies that did survive discovered the need to emphasize software ahead of hardware and to As Bill began to formulate ideas about using technol- address user needs. The initial surge for personal com- ogy, he projected that a process could reduce adminis- puters was limited as most users required education in trative communication tangles so sales professionals the applications and selection of both software and would have more time for customers, and improve hardware. Essentially, it was an evolution. With the de information accuracy and efficiency for more effective velopment of more sophisticated software and more time usage. extensive usage in many different areas of applica- tions, the need for systems and networking became ap "Maybe we could use our own technology (com parent. Thus, a more complex systems approach"re puters) to provide the salesforce immediate infor quired not only a change in marketing but also a need mation on order statuas, pricing, availability of for service and support. Many of these changes called items, electronic mail, spread sheets, account and for greater resources can originally planned. Invento- territory profiles, etc. This would help manage in ries of equipment and parts were higher than antici- formation and improve communications among the sales reps, sales managers, corporate marketing pated, the need for knowledge and well-trained per personnel and most importantly, the customer." sonnel increased, and there was an increase in the training of users and in providing after-sale support Background Sales and Earnings Businessland was founded in the mid 1980s by Bret Adding to Bill's dilemma of rising costs and ineffi- Lane and Gerald Parsons. They combined knowledge, ciency in the selling proces, was the realization that skill and the experience of marketing and technology to form a company that sells, services, and supports Source: Allen. Wedell, Colorado State University. This case was computer and workstation products from leading man prepared for chroom decumion rather than to trade either ufacturing companies. Today, Businessland is a promi effective or ineffective managerial decision. Copyright 1997 440 Cases Businessland Computers, Inc.: What If We Automated Our Salesforce! Businessland's orders for the last year increased only 1% as compared to a 19% increase five years earlier. In a similar pattern, current year revenues increased only 13.8% compared to a revenue growth of 21.1% the previous year and 42.7% two years earlier. Earnings. however, decreased to a negative of - $23 million in the last year as compared to a decreasing growth rate of 91.5% in the previous year and 37% two years can lier. Parallel to this, Bill noted that the category of expenses identified as selling, general, and adminis trative increased nearly 19% during the past year com pared to only 9.6% the previous year. It was immedi. ately apparent that revenues were still increasing but at a decreasing rate but that actual orders had almost be come stagnet during the past year. By contrast, operat ing expenses were running wild and if Business and were to remain competitive, these would have 10 be brought back under control. Bill began to focus upon alternatives. Revenues and earnings are shown in Figure 1. Sales and Marketing Automation At a recent seminar entitled "Marketing Technology, Bill had been exposed to the concept of Sales and Marketing Automation (SMA) which is a system de signed to add efficiency to sales operations. In the words of Steve Husner, a sales rep for Nation's Carri ers, "The laptop allows one to follow through with a customer rather than having to get back to them at a later time." It permits a rep to hook right up to mainframe via a modem and get answers to any ques tion the customer may have right on the spot SMA also improves salesforce productivity and increases el fectiveness by: reducing the amount of time a salesperson devotes to administrative tasks such as the preparation of call reports. tracking sales leads FIGURE 1 Businessland Computers, Inc. Five Year Selected Financial Denter Year (last fiscal period) Year 2 Year 3 in the sands) Year + Year 3 Net Sales $1,367,170 $1,200,628 3990,119 3693,828 $501,038 Gross Profit 287,550 313,645 265,868 136,475 198,956 181,364 298,076 250,762 928.678 139.495 Selling, General, & Administrative Exp Restructuring Exp Income (low) from Operations 13,655 (24.161) 62,884 37,195 17,192 (2,91 Income (los) for IRS (3080) 56,384 31,665 18.882 (8.04) (24.354) 33,205 17.485 8,078 (10.7631 Income (lon) before extra ordinary icon Net Income (los) (25,297) 17.485 12,789 (2,180) FIGURE 2 Total managing time and territory Estimated SMA Costs developing proposals and persuasive presentations First Year Second Year impressed with the opportunities of such a pro- Bastes gram, Bill began to think about a program that would Hardware $3,500 provide Businessland's salesforce the productivity tools Software 1,000 31.500 that would increase selling productivity and at the same Supplies 500 time, lower seiling costs. Immediately, Bill set up a task $5,000 $1,500 group to help him outline the goals and objectives for Operational the project and to identify the resources that would be Insurance $100 $100 required -financial, equipment, and support person- Electronic mail 150 150 nel. The group identified three fundamental objectives Software Upgrade 100 100 that would evaluate the effectiveness of such a program: Extended Warranty 550 Total $350 $700 1. To increase sales productivity and Implementations effectiveness by 25 percent Consultant $300 Training 400 2. To increase clistomer visibility of Spare Equipment 350 Businesstand's automation solutions through Total $1,050 the use of their own products (computers). Overall Total $6,400 $2,200 3. To increase sales rep job satisfaction, confidence and motivation Amount added for $1,500 $500 management support personnel In order to evaluate future sales productivity, the group analyzed the past performance of the salesforce. Grand Total $7,400 $2,700 They identified work patterns falling into the following major categories with time spent as shown: Contact with Customers force regarding their satisfaction with the implementar 26% tion and usage of SMA. The group, however, was much Administrative Sales Activities 319 more concerned as to how they would measure the Travel and waiting 15% productivity of the sales automation and with the de Meetings and training termination of the return on investment. Bill was 13% rather clear that he wanted to know the break even Office and personal time 15% point before he would be willing to include the pro- Total 100% posal in the budget. The group estimated the automation costs to run Royal Corporation about $7500 per salesperson as shown in Figure 2: The As Mary Jones, a third-year sales representative for task group thought it would be relatively easy to mea- sure the second and third objectives by randomly the Royal Corporation, reviewed her call plans for to- surveying both Businessland's clients and the sales force once the program was initiated. They proposed that clients could be surveyed as to how they per. Source: Copyright 1994. This case was prepared at Halison College ceived sales automation and the impact Businessland try Professor it. David Hennessey and Barbara Kalunian, graduate student, as the basis for discussion rather than to state either had upon their purchasing decisions. Similarly, they effective or ineffective sales performance. Names and locations and thought that reports could be obtained from the sales been dinguined 4. Considering an increase of 30.7% in last year's sales: (1) What additional sales would be produced? (2) Considering Businessland's gross margin percentage what would the additional gross margin be, on the additional sales