Infomatics, April 2002

Why do companies such as IBM outsource their sales function? What can a third party offer business that their own internal sales force can't provide? Mike Kelly, managing director of TSL, debates the issues

The current economic slowdown is forcing companies to find ways of reducing the cost of sales, increase the performance of their sales team and drive a systematic sales strategy to increase sales productivity. In response, many solution providers have restructured their sales operations to accommodate outsourced business development teams.

So how does this process work? And what are the benefits and the potential pitfalls?

American companies in particular are positively disposed to outsource rather than trying to do lead generation internally. They look for lead generation firms, which understand their technology and business with a proven success in selling into large organizations. After product development, and sales itself, lead generation is usually the next most important activity for a technology company. Without sales leads there are no contracts to close. Without closed sales, there is no company. With even less sales opportunities around, only the fast and efficient will survive.

The days of the stereotypical salesperson checking into the office, gathering potential client details and calling door-to-door to close a sale are long gone. Multiple decision-makers based in a number of different locations make the salesperson's role more sophisticated and the sales process more complex.

For the IT industry, selling to large organizations can be difficult, particularly as the purchase of IT solutions involves demonstrating ROI, and can impact significantly on every aspect of the company. Implementation of Customer Relationship Management (CRM) or Enterprise Resource Planning (ERP) solutions, for example, directly affects the way a whole company does business.

The current period of downsizing, coupled with the recent spate of mergers and acquisitions, further complicates the sales process: this week's decision maker may no longer work with the company next week. Many businesses fail because they do not have an effective system of identifying, qualifying and managing potential sales leads, which results in missed opportunities. Having a focused team developing qualified sales leads, tracking longer-term leads and creating brand awareness is essential for success. Increasingly, large companies are turning to third parties to manage this function of their sales operations.

Advantage Outsourcing
Outsourcing lead generation can be beneficial in a number of scenarios. Business development staff may be capable of increasing revenues by as much as 150% in some cases. They can scout the web for prospects and they can be more effective than a field sales person working on the phones. According to Gartner Group, at an average of $87.50 per selling hour, a business development person costs about 35% of the $250 per selling hour that an average field sales representative costs.

An outsourcing sales operation can also help companies break into new markets. Providing a sales team with a constant sales pipeline as well as holding onto information in a central repository. This is one way of making sure important information does not walk out of the door when staff leaves. Outsourcing is also useful if in-house sales support is limited. A third party can populate and update data in a company's CRM system to maximize customer retention opportunities, as well as ensuring only qualified leads are provided to the sales force.

Potential Pitfalls
But there can also be disadvantages to outsourcing. Imprecise or undocumented objectives for the sales lead generation campaign can make it very difficult to measure actual results. Not tracking longer-term leads, for example, will have a serious impact on a company's sales pipeline in the future. Without good communication with your partner, your sales team risks losing touch with the status of its sales leads. There's also a risk that a third party may buy or use poor-quality data as a base to work from.

Before outsourcing any part of their sales process, then, companies should consider the industry track record of any prospective third party. It is also important to have clear and realistic objectives for each target market/campaign. Outsourcing companies that provide a service level agreement as part of the contract will reduce the risk.

Successful outsourcing depends on good communication - companies must be clear on the means of reporting. Proper tracking needs to be in place so that the performance of the third party can be analyzed over time, ideally comparing the results of internal and external teams.