Few days back I was going through the annual reports of Salesforce.com , an organization known for its cloud CRM software , wondering how this organization made it to the Forbes list for 3 years in a row. I found something interesting , I found that it is increasing its revenue like no other company in the world, 31% YoY growth! that’s maddening.Being on aggressive growth trajectory, salesforce.com was also consistent in making losses for last three years , the highlight being, sales and marketing expenditure as a portion of cost of revenue was humongous( a whopping 67% !). Needless to say Salesforce.com was a sales organization more than a cloud software solutions organization.
Come to think of the new businesses of the 21st century and they have a similar story to tell. They need a huge sales-force. Have a look at the placement data of any top tier B-schools and you will find that almost everyone is selling Insurance policies, loans, software and online advertisement space. The obvious part is these positions are being created because there is a high attrition rate in these domains .You cant last long if you cant take the pressure , add to it unrealistic targets and abusive managers. But in addition to that reason, a subtle underlying cause is at play.
Here is how some traditional functions in typical organizations got redundant in past century (the traditional functions as mentioned in porters value chain) :
In the 19th and 20th century industrialization happened through manufacturing. There were organizations which manufactured and “also” did little marketing and selling. Towards the late 20th century there was a flip, now you had organizations which marketed and sold and “also” manufactured. This was simply because everyone had developed competence to manufacture most things needed my most people. Manufacturing was commoditized ,towards the end of 20th century manufacturing got concentrated in one place on earth called as “China” . So to differentiate and impact the bottom line and beat China’s scale of economies, manufacturing in other countries had to focus on streamlining itself by lay-offs. Automation led to further efficiency. Six Sigma programs and the Toyota way was preached like religion. Production folks started religiously following these disciplines to make the management feel that they are still worthy of doing something. Go to any automotive manufacturing facility today and you will see these approaches and progress printed on A3 sheets put on proud display on factory floors.
Maintenance department was populated by un-ambitious mechanical engineers. No one cared to leave for better opportunities and everyone was happy doing a thankless job. Since nobody left the organization, nobody was recruited. They sometimes complained that production department took all the credit for their hard work.
HR department drank more coffee than the maintenance department, but the CEO who had subscription to HBR magazine, thought that HR is the change agent. CFO thought otherwise. So far they had gained expertise in booking meetings at awesome locations and coordinating training programs. HR was always an operational support function. IT department? read Outsourcing , mass recruiting, herd mentality. Likewise administrative functions (Legal , accounting, finance and procurement) also got streamlined due to advent of computers. Now fewer people could handle multiple tasks.
Bottom-line is that the core of an organization which was to manage human resources, manufacturing, and maintenance was shrinking. It became so efficient that processes were set in place and any human being of an average intelligence could handle those processes. Non-core processes were outsourced. And then there was the rise of KPOs. Anyone who could read, speak , google and fill excel sheets ended up there.
It was found that every penny invested in manufacturing and other operations resulted in diminishing returns. And organizations left the task of innovating to the ilk of Apple. Innovating was hard, Six Sigma and Toyota way was easy (at-least to follow). Fall of Motorola (the organization which gave us six sigma) was caused because it couldn’t innovate. So if you can’t innovate and manufacturing is commoditized how you create a difference? You simply did aggressive push “sales”.
Every penny invested in “sales department” made some sense. You could recruit , trim, shave and do other stuff to your sales team which comprised of highly enthusiastic and materialistic individuals with generic skill sets. There was an “Undo” button here which was not available in other domains. Capital expenditure in a manufacturing facility to optimize cost was a risk but recruitment in sales department was always low risk tactic .Nobody cared how big your sales team gets as long as they bring in sales. Rest of the organization was allergic to people, fewer the better ! nobody ever said bring in more guys to improve operations.
The law of diminishing returns didn’t quite apply here, and nobody ever thought of automating sales beyond fancy CRM softwares. You always needed people to sell your products to other people. Put a proper incentivization plan in place and you could always see some results through endless human suffering , frustration and unrealistic targets . A machine could never replicate that human suffering and greed to achieve excellence. Even the organizations on the frontiers of technology needed people to sell its products and services. Thus sales became the ultimate panacea of this world. So why so many sales jobs? because that is where most humans can still add value.
One minute notes 