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NEW YORK (Reuters) – Pfizer Inc. said last week it would cut its U.S. sales force by about 20 percent, or some 2,200 jobs, as part of a comprehensive cost-cutting program.

Good move. Wrong reason.

Pfizer is the world’s largest pharmaceutical maker, with a vaunted sales force. The cut is big news. But at least in the press, this is all about cost reductions:

Prudential Equity analyst Tim Anderson called the cuts "helpful."

"The easier way to win is to have a pipeline (of new drugs in development), but until you have more sources of growth ahead of you, cutting costs is the smart thing to do," Anderson said.

"I wouldn’t be surprised if this was just the first step, but just how low to go is a very tough question to answer," Anderson added. "I actually don’t think the industry knows how far they can cut."

The fact is, pharmaceutical sales costs are only high relatively—because their productivity has plummeted. The vast majority of sales calls don’t result in being seen by the doctor, and when they do, the average time is something like 90 seconds.

There are lots of reasons for this, but one stands out—the low level of trust in the relationship between rep and physician.

If there was ever a potential role for a trusted advisory relationship, it ought to be the one between a physician and a pharmaceutical expert. No doctor can afford to keep up with the bewildering array of pharmacological, regulatory and treatment-related details of all the drugs in existence. Yet drugs are increasingly important.

Enter—one would wish—an unbiased rep, able to give trustworthy advice, focused on helping the physician and patient’s health alone.

Indeed, that’s why many enter the pharmaceutical business. But it hasn’t worked out that way. Rep sales forces, through an array of complex short-term measurements tied to incentive schemes, and deep behavioral training on how to maximize seller impact at the transaction level, have come to be managed as engines of revenue to the sellers, rather than trusted advisors to the physicians.

The result, paradoxically, is lower revenue.

It’s always that way when the paradox is violated. If you want to sell, stop trying to sell. If you want to make money, stop trying to make money. If you drop those as overt objectives at the transactional level, and instead focus on serving the true needs and wants of your clients at the relationship level, you will—paradoxically—end up selling a lot, and making a lot of money. But only if you don’t set out to do so.

Profit is a byproduct of great customer focus—not the purpose itself. If you subordinate focus to profit, you get neither. The physicians know this, and have voted.

The pharmaceutical industry could use some improvement in its perceived level of trust, and it’s not a PR problem. This is a golden opportunity for Pfizer to exert some of its traditional industry leadership by leading the way to a truly customer-focused model based on greater trust with physicians.

Don’t worry: this is not a political blog, nor about to become one.

In 2000, Sen. John McCain campaigned for the presidency from his bus, the Straight-Talk Express. His image and strategy were about being the Man you could Trust to Tell you the Truth.

In November, 2003, John McCain said:

"Ethanol is a product that would not exist if Congress didn’t create an artificial market for it. No one would be willing to buy it. Yet thanks to agricultural subsidies and ethanol producer subsidies, it is now a very big business – tens of billions of dollars that have enriched a handful of corporate interests – primarily one big corporation, ADM. Ethanol does nothing to reduce fuel consumption, nothing to increase our energy independence, nothing to improve air quality."

In August of 2006, McCain said, "I support ethanol and I think it is a vital, a vital alternative energy source not only because of our dependency on foreign oil but its greenhouse gas reduction effects.”

And oh yeah—that’s while he was visiting Iowa, land of corn ethanol and presidential primaries.

I’m not bashing John McCain. He is not unique. Remember “read my lips—no new taxes?” “I did not have sexual relations…?” Or, going back, the “secret plan to end the Vietnam war?”

But McCain’s case acutely raises a dilemma. Can you—or can you not—speak truthfully and be elected? I don’t mean to be coy or cynical. I mean to pose a serious question: is the notion of trust fundamentally compatible with the practice of politics?

Do Honesty and Trust Win You Votes?

It would appear that McCain has answered in the negative. On the face of it, he is saying that direct appeal to various groups’ economic interests is a better strategy for getting elected than the “straight-talk” strategy he had before.

Resolved: Straight talk is a viable strategy for success in politics.

First, the ayes. Voters tirelessly say they want someone trustworthy. Bush scored big points on Kerry’s “flip-flop”— his convictions were unstable, he could not be trusted. Jimmy Stewart cleaning up Washington sells big movies.

Now, the nays. Politics is the art of balancing interests—“truth” is not relevant, compromise is. Except in state-threatening times of war, bi-partisanship and selflessness just gum up the works. People elect people to promote their interests. Politics is about allies, not trust; the art of the possible. If all sides hurt equally, the process worked.

I don’t think this is a no-brainer. Many businesspeople tell me that CEOs can be successful by embodying the values of trustworthiness and devotion to customer, employee and shareholder value. But, those same people say, you simply cannot do that in politics.

Would Iowans vote for someone who spoke the truth, even when it conflicted with their own sectarian best interests? Would you?
McCain answer is clear: the nays have it.

I suspect he may be right. Still, it would be most fascinating to see someone actually test the proposition someday.

(Further reading: John McCain’s biograph from Quick Overview)

The scandal du jour is options backdating. Recently, it was illegal snooping by a Board Chairman. We’ve seen late-trading and front-running charges at mutual funds, payoffs and rigged bids in the insurance industry. We’ve seen over-reported oil reserves, and under-reported profits.

The mothers of all recent scandals—Worldcom and Enron—have pretty much wound down. In perhaps the longest-playing scandal, Walter Forbes, former Chairman of Cendant, was convicted of accounting fraud in 1998 in his third trial in 8 years.

So—what’s up next?

You could make a case for executive compensation.

CEO Compensation Through Time

You’ve read about the increasing gap between CEO compensation and that of the rank and file. The Economic Policy Institute says the ratio of CEO total compensation to annual earnings of a full-time minimum wage employee went from 51 in 1965 to 821 in 2005 (due in part to low increases in minimum wage, and in larger part to increases in CEO compensation).

The Institute for Policy Studies and United for a Fair Economy in 2005 says “the ratio of CEO pay to average worker pay increased from 301-to-1 in 2003 to 431-to-1 in 2004. By contrast, in 1990, the average large company CEO made just 107 times the pay of the average production worker.”

Let’s assume the general direction is true: a higher gap, not a lower one. (If you think these sources are flawed, check their methodologies and feel free to add a comment on other sources here).

Now check Gretchen Morgenson’s excellent NYTimes article on 26 November, 2006, “Peer Pressure: Inflating Executive Pay.”
Morgenson maps a cross-institutional morass of plausible deniability, heretofore obscured by the absence of disclosure requirements. Here’s how it works.

A CEO’s compensation is generally determined by a subcommittee of the Board (note the interesting dynamics that creates between Board and CEO). The Board, in turn, typically hires an external executive compensation consultant. Some of the big ones are Hewitt Associates, Towers Perrin, Hay Group, and Watson Wyatt; executive compensation is one of several lines of business for them, so visibility is a little obscure.

Most importantly, the accepted methodology is to identify “comparable companies” for purposes of comparing base CEO pay; and also for purposes of comparing performance. Note: it’s better for the CEO if you compare base pay to bigger companies, and performance to lower-performing companies. Amazingly (well, it was to me), there’s no requirement those two comparable groups be the same.

So, how do those groups differ? Dunno—they don’t have to say, and choose not to.

Finally, what company, board or compensation consultant enjoys declaring that “our policy is to have our CEO paid in the bottom half of his comparables list?" The temptation is to dodge the issue by fudging the comparison bases, and hoping no one asks. As Morgenson points out, this is Lake Wobegon on steroids—all the CEOs are above average. (Are you comfortable with the idea that there’s a 50% chance your doctor graduated in the bottom half of his or her class at med school? Think about it.)

That’s a lot of opportunities for blame-throwing and conflict-avoiding people to point fingers at others, hide behind “methodologies,” and generally obfuscate.

Do you believe it when someone says “the reason for high CEO pay is that it’s a competitive market?” I like free markets, but I’m finding this one hard to believe. I don’t think the supply side is the issue here; it’s the demand side.

Maybe that’s about to change. Beginning December 15, the SEC will require a company “to reveal which companies it uses in its peer group and to provide an extensive description of its compensation philosophy.” According to Mercer HR’s website, “the new rules allow companies to withhold specific, confidential performance criteria only if disclosing it will result in competitive harm. The SEC is expected to scrutinize this area to ensure robust disclosure in the CD&A.”

Scandal time? Consider this: SEC Chairman Chris Cox said of executive compensation, “no issue in the 72 years of the Commission’s history has generated such interest.”

More likely, it’ll be another crack in the dam. But as more data emerge, one thing will become clear yet again—the real crime is the cover-up.

CEO compensation is significant, it could make a difference if redeployed, and we don’t like such evident greed. But the even bigger issue is the cost we pay as a society when institutions are seen to have tweaked data, kept information secret, and in various ways loaded the dice—all the while claiming not to be doing so.

We are all creditors to a system based on trust; and we’re all left holding the bag when some players default on that trust. Trust betrayed is trust eroded. Let’s start letting some sunshine in.
 

First, I want to thank all those who have commented on this blog in its early weeks. I appreciate, it and so do the many other readers who have yet to make the jump to commenting themselves: to whom I’d say, come on in, the water’s fine!

Maureen Rogers
Brooks Sackett
Steve Smith
David Andrew Thompson
David Maister
breakingranks
Ian Welsh
Dan Keeney
Drew Neisser
Martin Calle
Vince Kuraitis
Chui
Sharon Horstead
Karen Hudak
Mike Slater
Barbara Garabedian
Todd M. Warner
Martin Calle
Michael Fabiano
Shaula Evans
Philip McGee
Eddie Rogers

A few words about Thanksgiving.

Many of you may already know that Thanksgiving was initiated by Abraham Lincoln in 1863, in the heart of the Civil War (but not me—I didn’t know until Tom Hudak set me straight). It is worth reading Lincoln’s words in the original; few writers can improve on Lincoln.

I am hardly unique in my great admiration for Lincoln. He was not only a world-historical figure, but a freak of humanity. He burst upon the world from obscure Kentucky roots. He had four sons, 3 of whom died young, with Robert living into the 1920s—none of them leaving any descendants.

Lincoln had an astonishing capacity for empathy. You get the sense that he personally felt deeply the loss of every soldier from both sides—in the hundreds of thousands.

No doubt there were politics involved in the proclamation—maybe someone can comment on that—he was profoundly political. But he was also conscious of subordinating politics to the pursuit of broader goals. Or so it seems to me.

In any case, the holiday he started has become perhaps America’s favorite. Largely secular (or at least non-denominational), and largely non-nationalistic—Lincoln’s appeal explicitly transcends our national boundaries—it appeals to our better impulses.

It is good to aspire to an attitude of gratitude, and, thanks to Lincoln, to have a holiday that reminds us to do so.

 

 

For those of you in business development and sales, what would you say is the most important aspect of that process?

Here’s what the market thinks. Or, at least what Amazon’s search algorithm produces when the word “sales” is linked to a related term:

Sales 302,410
Sales price 24,969
Sales pitch 11,797
Sales meeting 5,608
Sales close 5,390
Sales leads 5,270
Sales buyer 4,756
Sales quality 4,616
Sales presentation 4,610
Sales decision 3,041
Sales qualify 691
Sales screen 597

I’ll talk another time about the issue of price. (Doncha love how sales “pitches” get mentioned nearly three times as much as “presentations?”).

Let’s focus on closing—clearly a big deal to people who must persuade others for a living. What’s the relationship of trust to closing?

Here it is:

If you stop trying to close, you’ll build trust. And you’ll close more.

And yes, that’s a paradox. So is much of life. Here’s why it works.

Closing a Sale

First, why do you want to “close” the deal? The usual answers are:
 

a. to get my sale now
b. because if they leave, they won’t come back
c. because they need that little “push” to make a decision
d. because closing uncovers objections that need to be overcome.

The first reason is selfish and will reduce trust; you deserve a “no” if that’s all you’re up to, because it’s manipulative.

The second is only a disguised version of the first.

The third infantilizes the customer; fine for the emotionally needy, not for most competent buyers.

The fourth—to identify and overcome objections—is the most serious. It comes from a belief that buying is about rational decision-making.

If they haven’t bought, so the logic goes, there must be a reason. If I can uncover the reason, I will remove the blockage to their buying. Repeated attempts to close (the ABC rule, Always Be Closing) make sense based on this logic. And it doesn’t have to be manipulative.

But it’s still not quite right. As Jeffrey Gitomer puts it, “the buying decision is made emotionally, and justified rationally.” Lawyers, consultants and accountants think this doesn’t apply to their clients, but it most often does.

When buyers buy, it isn’t because their objections have been met; it’s because they’ve gotten comfortable with the decision. And the chief road to comfort is not through a rational litany of point-counterpoint, but through a human process of being listened to, clarifying issues, and envisioning outcomes.

Which late-discussion question do you think is better?

1. Are you ready to buy now?
2. What would you like to do now?

The first question, whether you say it that way or use similar words, is what’s usually called closing. It’s ultimately all about you, the seller. And the customer knows it.

The second question, whether you say it that way or use similar words, is all about the customer. The subtext says “the timing is yours, the next steps are yours—I’m here to be of help to you. What do you want to do?”

The second question isn’t “closing.” But it closes better than the first question.

And that’s the paradox.