BBMK | HP_CSO | Ramashis Biswas | 61510121

The Sales Force as a Cost Center

HP grouped its various divisions into three large business sectors: Measurement systems,
Computer products and Computer Systems. Each division had its own sales force and support
organizations. As a result transfers between divisions and sales regions were mostly at market
prices. Any allocation of field personnel or capital expenditure amongst these divisions was done
against promised increase in profits. These factors contributed in HP treating its Sales Force as a
cost center, responsible for revenues, field marketing and customer service, as any addition to the
sales force could only be done against promises of increased profits.
Another factor that contributed to HP treating its sales force as a cost center was the buying pattern
in the early 1990s. Customers increasingly bought products from Value Added Resellers, thus
reducing the need to have a large and capable sales force. In addition, HPs values suggest that
they suffered from a mindset of a good product sells itself thus considering the sales force a
necessary accessory than a strategic business function.

Implications of the Approach

As a result of this approach, the sales force was focused on short term sales quotas, rather than
focusing on a strategic plan to cultivate accounts and increase long term profitability for the
company. While this was adequate for servicing distributed channel partners, it impacted their
ability to successfully manage large accounts in a dynamic business environment.
A large account is characterized by:
-

Significant sales volume

Large decision making units
Geographically dispersed organizational units
Specialized attention and services

As a result, any large account requires a long gestation period and often involves activities which
do not directly result in revenue generation. This was not possible with the current focus on
meeting sales quotas, which in turn resulted from HP treating its sales force as a cost center.
On the positive side, a focus on cost necessarily kept the sales force lean. However, as detailed in
the case, any pressure on costs also put pressure on reduction of sales force numbers and
consequently demoralized a number of employees who felt under stress.

Problems with the current Account Management Strategy

In 1991, HP reorganized its sales force to give them greater flexibility and autonomy in operating
decisions. The sales force was divided into three categories red, green and blue each targeting
a specific segment of the market that CSO wanted to serve. Also, instead of waiting for RFPs,
sales people were now expected to actively spend time and effort in the early stages of a sale to
understand customers business and problems. The focus thus, shifted from the product only to
offering a complete solution to the customer.

BBMK | HP_CSO | Ramashis Biswas | 61510121

Diaz also brought in training programs designed to de-emphasize the traditional focus on HP
product capabilities and specifications in favor of teaching sales people how to evaluate customer
requirements and suggest ways as to how HP could address them.
The approach helped HP to gain expertise on domains and serve institutional customers more
effectively. As the case points out, customers felt that HP Sales Reps were now more
knowledgeable about the businesses they serve, rather than only focus on the unit sales that they
were going to make. Additionally, HP could also use the specialization of its sales force to create
a competitive advantage for itself and create entry barriers for competition.
At the same time, the focus on extreme customer service led to customers to use the HP sales force
as an extension of their problem solving unit, thus placing unnecessary burden on their time and
capacity. Due to the focus on revenue, sales people were not evaluating accounts and instead
closing sales as and when they were available. The high conversion rate was a function of the large
number of repeat purchases that was happening and did not allow HP to get into the innovation
product space. A potential reason for this would be that the sales force in their narrow focus on
conversion, were liaising with a SPOC, the IT department, instead of developing multiple contacts
in a buying organization. This was not optimal for HP, as the customer was moving to consolidate
the Repurchase vendor base, in order to pressurize vendors on cost and drive prices down. Finally,
the change met with significant resistance from pockets of sales people, who saw themselves as
losing power over their regional fiefdoms. Also, smaller customers, who were used to receiving a
high level of personal service from HP reps, resented being relegated to channel partners.

Suggestions
-

Redesign sales KPIs ad align incentives to overall account profitability margins, rather than
revenue growth
Create a separate team to handle innovation engagements. This team could be an adjunct
to the regular team and would focus on meeting and understanding motivations for the
business to acquire an HP solution.

Create a Knowledge Management architecture within HP to collaborate on learnings from

customer businesses. Also, increase collaboration between different departments to benefit
from experience effects.
Eliminate time drain of the sales force:
o Have dedicated teams for customer service
o Reduce internal silos to streamline operations and time to market