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Sales On-Target Earnings (OTE) Compensation Plans

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The Point: The most frequently asked inquiries that we receive at The Zeroing Agency — Tip of the Spear Ventures’ consulting side of the firm — is regarding OTE or on-target earnings. It’s clear why, because if you show us a salespersons’s compensation plan, we’ll show you what it is that they are going to do (and what will get done as a result!) On-target earnings allow companies to better plan their budgets. Additionally it helps sales reps to know the amount they’ll be able to earn should they reach their sales goals. This in turn increases the motivation of both sales leaders and their sales representatives to help boost their efficiency, revenue and increase growth to make the most of OTE. However, there are many important factors that companies must be aware of when implementing OTE within their incentive compensation pay plans. If they do implement the OTE methodology improperly it could result in lower morale, low performance, and eventually the loss of revenue for the business. What factors should you take into consideration when you are using OTE? In this article, we’ll discuss the OTE considerations in greater detail and guide you through the process of creating an effective compensation plan with it… Enjoy!

What is OTE?

In simple phrases, OTE or on-target earnings is the total of a sales rep’s annual base salary as well as their on-target commission. Then, OTC or on-target commission is essentially the commission sales reps receive if they achieve their sales targets.

In simple words, OTE is the total amount of compensation that sales professionals are expected to receive if they meet the 100% mark of goals or the quotas. The majority of the time, this quota is going to be an annual number, instead of the weekly or monthly numbers.

That’s an enormous amount of information to decode. In order to understand the concept more clearly let’s examine an illustration. Suppose you post an advertisement in order to locate an employee for sales. You plan to give the employee a starting salary of $100,000, provided you can prove that they meet their annual sales target. The job description you include in your advertisement will typically mention the compensation for the position by the number “$100,000 OTE”.

That’s why that, if a salesperson is interviewed and is hired, they should realistically expect to make $100,000 annually. The compensation will be contingent upon them meeting 100 percent of their sales targets for the year. Remember, the on-target earnings (OTE) figure of $100,000 is only an approximate figure. It could be a bit off, but it could be higher or lower depending on their performance to goals.

Benefits of using On-Target Sales Earnings in Compensation

There are numerous advantages of using on-target earnings in your compensation program both for you as well as those who sell:

  • Forecasting Sales Commissions – If you are able to calculate on-target earnings you’ll be better placed to accurately forecast sales commissions. This will make it simpler to plan and budget your financials.
  • Estimating Earning Potential – Your sales reps using OTE allows them to see the exact amount they’ll be earning should they be able to meet their sales goals. Another benefit is that when you have an OTE is competitive sales reps will be motivated to reach their quotas.
  • The Process of Determining the Realistic Commission Rate – If you choose an OTE number that is both realistic and competitive and realistic, you’ll be able decide on a commission rate that is suitable. That is you’ll be in a position to decide on the appropriate base amount for the sales reps you employ.

Employing OTE as a Part of Your Incentive-based Compensation Plan

We’ve now covered what on-target earnings (OTE) are and the benefits it offers. Now it’s time to consider ways to utilize OTE to enhance your compensation strategy. There are three key aspects to take into consideration when you plan to employ this type of incentive structure for compensation:

  • Set the Compensation for OTE. As mentioned previously, OTE is the total of sales rep’s annual base salary as well as the commission on-target, OTE is the total earnings that sales reps will be capable of earning. This means that it is essential to get this figure correct if you wish to retain and attract the top talent.
  • Calculating the Pay Mix. This is simply the ratio of base salary to the on-target commission. It reveals sales reps the level of risk that comes in reaching their OTE. The higher the ratio, the greater the risk.
  • Quotas and Setting Sales Goals. These sales targets are the objectives which sales reps must achieve in order to earn the entire OTE as compensation. In this case, it is essential that the goals you set are accountable and achievable, or sales reps may lower them in line with the goals they receive.

Set the Compensation for OTE

In order to retain and attract the top-tier talent, it’s essential you get your OTE in order. The first thing you should be aware of is what your market-based compensation is for your particular sector. Sales reps have to feel as if they’re receiving an equivalent amount to employees of other companies. If they’re not and your OTE isn’t in line with other businesses in your industry, it will be difficult to hold your sales reps’ good qualities and turnover will result.

Be aware, there aren’t any strict and fast rules for calculating OTE. Therefore, it can vary depending on the industry you’re operating in, the kind of products you’re selling, the complexity of the sale, and the amount of expertise you’d like your sales reps to possess. In this case, a site like Glassdoor is a great resource. It can provide information about what market-based compensation plan for your job and the industry you work in looks like.

Another factor to take into consideration in determining the OTE must be the fact that your OTE needs to be similar to other sales and other non-sales positions within your business. The most important thing is to make sure that you provide similar pay rates for the same amount impact a particular job position can have on your business and its profit.

This means that you must be wary of overpaying or underpaying for the performance of your sales team. If you overpay you will incur costs for customer acquisition that will be excessively high. Likewise, underpaying can result in poor results, low morale, and lower retention rates for employees. In the end it’s all about finding the right balance.

Calculating the Pay Mix

As previously mentioned the Pay Mix is the ratio of the base salary to commission paid. The ratio determines what actual earnings will be for particular roles. Our experience suggests that OTE plans average 65% base salary and 35% commission. However, the Pay Mix ratio will vary based on the particular market or the expertise of the sales representative.

But the most important aspect to take into account when determining the Pay Mix ratio is the extent to which a sales representative is able to influence sales that, in turn alter the ratio. For instance, when a sales representative generally has no control over the result of a transaction, their base pay should comprise an increased portion in the OTE. If, however, the sales rep is able to significantly influence sales and influence the outcome of a sale, commissions should constitute more of the OTE.

Quotas and Setting Sales Goals

From a sales rep’s standpoint, one of the primary aspects they should consider when they’re evaluating their compensation plans are the sales targets, or the goal. In order to achieve the anticipated total salary (OTE) and to earn it, they must meet their sales targets. This means that sales targets must be achievable. However, if it’s not so, the sales representatives are likely to, as previously mentioned, simply reduce their sales. That is, they’ll calculate their pay by calculating their targets — More proof for the previously mentioned “show us a salespersons’s compensation plan, we’ll show you what it is that they are going to do (and what will get done as a result!)”

Based on our experiences, sales quotas must be achievable for 60 – 70 percent of your sales representatives. This gives the majority of them the chance for them to achieve their OTE. However, those who aren’t will realize the possibility of it. They’ll also be driven to be more efficient — Think “stretch” goals here!

However when your quotas and/or goals are not achievable in less than 60 percent, it’ll result in the opposite. The result is that morale overall will decline. If the percentage is higher than 70 percent, you’ll probably overpay for the performance.

Remember, when setting the OTE and setting the Pay Mix various factors can affect the quotas you set. In this case, the majority of companies begin with their historical performance, and then adjust the quotas according to the market conditions.

But, that means for more recent products and markets that are less developed this could make it more difficult to set limits. Considering the COVID-19 pandemic, this is an extremely important point. The most effective solution is to establish quarterly quotas , and then adjust them over the course of the year as information becomes available.

SUMMARY

The use of on-target earnings (OTE) in your compensation plans is a great option to improve the performance of your sales reps and encourage them to generate more sales. But, it is important to be careful when setting the OTE as well as the pay structure, and establish sales limits. Once you’ve finished this, you must determine the salary for each employee. This is where we can help. We can streamline the process of commissions for sales, which means you’ll be able to concentrate on developing your company.

We love helping businesses lessen the burden of the process of calculating sales commissions. If you’d like more information more about the concept of OTE and how we can assist you in improving your sales, we’d love to talk. Contact Us today to learn more.

Sam Palazzolo

The Case of Two Business Transformations – Is Agile the Key?

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The Point: We’re often asked at Tip of the Spear Ventures’ business transformation consultancy – The Zeroing Agency – “How as an operator can we set up our organizational transformations for success?” While there is no “magic” pill that allows business transformation organizational leaders to succeed, there are keys to agility that provide success insights. Different approaches to business transformation can illustrate how a company and market conditions can guide the structure of teams around work, and the rapid benefits that follow. So in this article, we’ll explore the case of two business transformations… Enjoy!

The Case of Two Business Transformations -- Is Agile the Key?

Business Transformation – What’s Holding Leaders Back?

While over 70% of businesses report they believe that agile business transformation is their top goal, we haven’t yet witnessed the level of adoption of agile by leaders which this kind of curiosity leading to success would suggest. It’s puzzling for us? After all, it’s been proven that businesses that are more agile will be 50% more likely to beat their competition in terms of financial performance. It is also known that agility can help operators win four of their primary fights: faster speed to market, greater satisfaction with customers, substantial productivity increases as well as a better employee experience — which improves attraction and retention.

So what’s holding operators back from achieving their business transformation goals?

We believe that a large part of the problem is a lack of understanding regarding the meaning of what “agility” really is and how it manifests in a particular business setting. The term is frequently employed to describe an undefined notion of being flexible. One executive explained the reason for his constant tardiness by saying that the reason was “deploying agility as being flexible with time.” Some are able to connect the word with the notion of software development or bean bag chairs and a variety of seating arrangements.

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Any of them are true. What exactly is the definition of agility?

Reminisce about a time or situation where you were a part of or were faced with a pressing and decisive difficult situation. Perhaps you were responding to an emergency within your local business operation, working as a project manager, or faced the impossible task at hand as the actual conduit of work. You brought together people from diverse backgrounds that were selected based on their skills and abilities, worked in a manner that was largely devoid of the structure of a hierarchy, and were determined to achieve a specific goal. These remarkable achievements are frequently described as “peak memories.”

Agile is, in essence the art of creating the components of the perfect experience for each employee — each day — without the need for a crisis to be present. The ability to scale agility embeds these elements within the foundation of how things are executed by providing the following:

  1. A clear and precise purpose that is anchored by positive significance
  2. A precise idea of how/what success means
  3. Teams with the capabilities required to achieve without relying on other teams
  4. A rhythm that encourages small spurts of tangible output as well as frequent celebration of results

This is the essence of business transformation agility- creating organizations that have hundreds of these fantastic groups. But, great teams on their own will result in chaos and a lack of scale. Another crucial element is a solid backbone which supports the teams by providing a shared mission, a unified organizational culture and standards. These in turn facilitate the systems and processes that hold the organization together.

Two Approaches to Business Transformation Agility

Through our interactions with a variety of technology firm operator, we’ve seen two effective approaches to agile business transformation emerge in the form of agile accelerators as well as enterprise-wide agility. We’ll examine examples of agile business transformation at work in two cases — Company A and Company B to show two new success models that can help teams organize around transformation work. Both operators have seen substantial benefits from their business transformation which includes the four main benefits mentioned above. They have also attracted interest in the process.

The decision between these two methods of agile business transformation is based on the way that agility can be used to maximize the potential of a business, the level of maturity within the company, as well as the high-level management team’s views on taking small steps versus implementing quick and massive changes. The common thread between both is the need for companies to be “all involved” regarding agility. Only the magnitude of initial changes is different.

The next step is to look at how these two methods performed at the geo-political Antipodes TDC as well as Spark.

Company A: ‘Digital First’ First

In the throws of the 2020 medical pandemic, the summer was a difficult time in the eyes of Company A’s leaders. A recent consolidation of their primary brand via mergers and acquisitions was initially seen as a major boost to its B2B strategy. The appointed director of the B2B division, had an extensive list of changes to implement within the new company structure. The digital capabilities of Company A were among the best of the best — Current State Interviews and SWOT analysis findings clearly suggested that the company did not meet the expectations of consumers for services offered nor delivered on.

After having witnessed the impact of digital business transformation in previous roles, Company A leadership set it as an absolute priority and asked other trusted leaders with extensive knowledge and relevant experience to help make this happen. These leaders soon realized using the traditional methods would not yield outcomes in the timeframe required. Company A had invested substantial sums in digital business transformation over the years, but the results were typically slower than expected, and by the time the pandemic had arrived, consumers’ needs were changing dramatically and frequently (Never a good moment, pandemic aside).

To accelerate the business transformation process, Company A decided to inject flexibility in its transformation — agile business transformation. The company first established one, and then 12 agile teams that were cross-functional (or squads) comprised of product owners with frontline expertise, commercial specialists and customers-experience designers, architects and developers – all with the skills needed to create, design and improve digital customer journeys in a rapid manner. Each team was placed under the structure of the concept of a “digital tribe” headed by a Business Transformation Leader (BTL). The teams were given full discretion to perform whatever it took to design seamless and memorable customer journeys in the areas of online sales and services and gradually creating an agile IT infrastructure.

Company A leaders were aware that in order to be successful in their digital business transformation, they needed to create a new culture and draw the best talent. A brief tour through their digital warehouse shows that they achieved this. In the building that is a renovated warehouse located next to headquarters, there is no longer separate discussions of IT and business, and no longer “facilitating” middle management no more through lengthy steering-committee meetings. Instead, there are teams with cross-functional capabilities empowered to bring about business transformation changes.

18 months after the change was initiated, Company A sees the benefits of its new method of working. The customer onboarding process for instance, was one of the most frustrating experiences for customers and a primary reason for the low customer experience scores. Following the change, Company A’s experience onboarding has been rated five stars from the majority of its customers. Call volume, which is among the biggest cost driving factors for Company A has decreased by over 40 percent since customers are able to efficiently manage their interactions and address their issues on the internet.

Online sales are another interesting illustration. Six months prior to the business transformation initiative starting, Company A formed a traditional project team that was charged with creating and implementing a digital sales experience for the principal products. However, with project team members were scattered in different parts of the company, and each was working their traditional waterfall model. However, the project team had not been able to launch anything before it was integrated to the online tribe. Once they were co-located and equipped with agile business transformation techniques — like minimum-viable-product (MVP) thinking — the group had not only built a new sales journey but already generated its first online sales within a few weeks. The initial MVP was not as broad as originally drafted, but it nevertheless created momentum and gained sponsorship which allowed the team the time to tackle the complex technical aspects of the automated solution that was introduced after a couple of months. Conversion rates increased dramatically. The agile business transformation approach worked.

Company B: ‘Be Agile to be Agile’

Company B has been going through a business transformation course due to the reorganization as a result of a turnaround effort. After the turnaround was successful — including changing its name and reengineering its IT — Company B was in good health and investors had one of the industry’s most lucrative total returns.

However, the management team at Company B was planning to aim even higher. They believed that the game wasn’t about beating out other companies, but rather being in a competitive market composed of disruptive digital-native businesses — Think Amazon, Netflix, and Spotify. Partnering with or competing with these firms requires an overhaul in mindset as well as speed of execution and time to market, something that the traditional model of their functional organization cannot provide — even with its successful business transformation.

With renewed vigor, Company B’s top leadership team visited over a dozen businesses across the globe to learn how agile business transformation has helped them and what it could mean for them. They visited agile companies that were startups, as well as companies at different stages of their journey to become agile.

Company B leaders came back with a single conclusion: When it comes to agility, they must roll-up their sleeves, get their hands dirty, and trust in the agile business transformation approach to help them through — “Be Agile to be Agile.” They were looking to avoid a lengthy period where a portion of the business had adopted agile methods of working while the remainder was operating under the traditional organization structure. Companies they visited that had fully adopted agile business transformation practices across their entire company were flourishing. Companies that only tried to do it halfway often ran into some — a lot of — challenges.

The leadership team set out an ambitious timetable to ensure that the transition phase was kept to an absolute minimum. To ensure a clear communication channel, they released a corporate-wide announcement regarding the forthcoming journey. It also designated leads to the initial three groups that it created. The following months saw the leaders of these three groups create their own organizations of around 10 teams with cross-functional roles within each. The other employees worked on the necessary changes to shift the entire company towards an agile organization.

In the process, Company B dedicated significant effort in change management and capability building. In the first quarter before any structural changes took place, thousands of employees participated in defining and taking action on an entirely new mission for the business. This new mission led to changes in the company’s values, goals, behaviors, and capabilities. They also stressed inclusion and diversity to ensure that employees were at ease bringing all of themselves to work and working in teams in order to achieve high-performance within their teams.

In one section of the organization, where employees who had experience in agile was difficult to come by, leadership selected 40 high-performing employees to train them as agile coaches through an academy that was just created. They also made sure that all employees underwent a two-day training course designed to create great teams who are well-versed in the fundamentals of agile business transformation.

In Q2, Company B announced the creation of 12 agile business transformation groups. The company then reorganized around 40% of employees into teams with cross-functional responsibilities comprising IT, networks marketing, products and digital employees. The rapid transformation for other business units–channels and corporate support functions and other divisions–started immediately following.

Company B’s agile model was developed by analyzing where and how value can be generated in every aspect of business. Because of the nature of their industry, leadership decided to place an emphasis in “business transformation groups.” These groups control the customer experience along with product management, as well as related systems for specific items such as IT or mobile that allow for full differentiation and quick improvement. Their focus on the acquisition of new customers, as well as expanding existing ones. Additionally, they provide the capabilities and services for other groups. Channels (such as billing, retail operations, B2B sales and support) as well as the support services (such as finance and HR) make use of a mixture of teams, self-managing teams and other configurations of teams that fit the specific nature of job.

The Implications of Agile Business Transformation: “Open Heart Surgery During a Marathon”

The operating model for business transformation at Company A and Company B demonstrates a high-degree of determination. They’ve described it as “open-heart surgery during a marathon” — being prepared to drastically alter the operating model of a business without sacrificing efficiency.

The surgeons (aka, leaders) will inform patients about the potential risks associated with an operation prior to performing the operation in the first place, and I’d like to end this article with a similar procedure, so that you’re aware of four risks of pursuing agile business transformation:

  1. The impact it has on the people you work with is significant. An agile structure is designed around teams of people who can do things with minimal overhead for management. Company A asked around 200 of its most senior managers to be agile team members while acknowledging that agile business transformation isn’t suitable for all. Many chose to walk away rather than join. In addition, you should invest in new abilities including agile coaching that did not exist in the organization prior to.
  2. It is time to overhaul your finance and governance procedures. Agile business transformation teams need regular guidance and priority setting to ensure that they are able to prioritize their work. Traditional business cases and plans for multi-years that provide comfort to management will not work. Company B leadership needed to become familiar with 90-day goals and funding groups, instead of individual projects. This requires leaders to stay up-to-date with the latest developments and work in a transparent manner and openly, which may require changes in their accompanying mindset.
  3. The model of the people and culture must change. Valuing and paying individuals based on their position in the organizational hierarchy isn’t a good idea in a high-speed, flat company. Motivators that are extrinsic like bonuses and job titles have to be reviewed to create intrinsic motivation for business transformation teams. The importance of culture is so crucial to the success of a business that nurturing and transforming it is likely to consume the majority of your efforts to invest in your transformation.
  4. The job for the leadership team members is different — Very different. Agile business transformation requires strong, connected leaders to be able to see the market and set the priorities, and then let teams determine how they can meet these. At Company A, the top team led the business transformation through the creation of a leadership group and implementing a routine of stand-ups and retrospectives and presentations that were similar to the ones used by the rest of the company. They focused their work on the creation of a high-quality structure that will allow teams from other departments to be successful together.

Summary

In this article, we’ve explore the case of two business transformations. If the review of these two cases and the above four realities do not scare you off from pursuing business transformation, the best method to begin the process is to establish solid alignment and a shared desire in your team’s top management. We’ve found going to those businesses who have successfully engaged in agile business transformation to be a stimulating and enlightening way to begin your journey. Hearing the stories of other management teams is more than just a discussion in order to build a common perception of what agile business transformation can do to help your business. Discovering what you would like and perhaps more importantly, do not want from an agile framework is key. Make clear targets and design guidelines to ensure you are clear about what you want to accomplish.

Sam Palazzolo, Managing Director @ Tip of the Spear Ventures

Setting Business Transformation Targets

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The Point: The establishment of goals is an important step in any business transformation initiative. If done well, this setting of business transformation targets exercise sets the tone for the entire program and fundamentally alters the way people think. It also allows leaders to reach for the impossible. We have learned four important lessons from our two-decade experience working with companies in business transformation (change) initiatives. During the target-setting phase of the transformation, companies should keep these four principles in mind. So, in this post we’ll explore setting business transformation targets… Enjoy!

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Principle #1 – You’re Going to Need More Money

Recently, we compared the actual savings made by the 15 companies that we have worked with to the initial numbers they projected. It was quite instructive. The average company delivered 2.7x more than what their senior executives expected when they started the transformations. One industrial company achieved a result that was 4.7x greater than its original target of $50 million.

This business was not unusual. Many managers are slaves to their past and more inclined to return to old routines than to explore the possibilities of doing things differently.

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Principle #2 – Thinking Incrementally can be Counterproductive

We recommend that companies start with the theoretically possible number and adjust this number downward when there is clear evidence that certain actions may not be realistic. Arguments for a lower number should be supported with facts and the person arguing for it must bear the burden of proof. They must ask the question, “Why can’t this be done?”

For example, senior leaders in a technology company initially opposed plans to reduce the travel time between the corporate headquarters and a regional office. However, frontline workers suggested that a sub-regional office be built in the region to further reduce transit time from work by twenty percent. This was a win-win situation for both the company and its workers. The company is now considering how they can take things a step further with work from home (WFH) suggestions received.

Principle #3 – Get an Independent Parties Opinion

Intending leaders will find it difficult to move beyond incremental thinking. Intending leaders find it difficult to move beyond incremental thinking. Third parties and an internal team that isn’t burdened by the “how things are done around here” mentality will be able to offer a true perspective. We suggest adopting the mindset of an investor or private equity firm and looking at every area of the business with objective analysis of competitors and benchmarks. Companies must move beyond “groupthink.” They need to be bold and break away from the kind of consensus that suggests a 5 to 7 percent improvement, but not more. It is important to establish a goal without giving exact details about how it will be achieved.

Principle #4 – Opportunities Exist Where You Least Expected Them

Too often, companies limit their goal setting to the search for savings. Companies often overlook opportunities to increase productivity, implement pricing initiatives, improve sales force effectiveness, reduce working capital (in response to excessive stock buildup), or address customer dissatisfaction. Companies that are most ambitious tend to use all of the available levers. Setting aspirational targets shows the business that you are open to new ideas and ways of doing things.

SUMMARY

In this post we’ve explored the topic of setting business transformation targets. Again, the establishment of goals is an important step in any business transformation initiative. If done well, setting business transformation targets set the tone for the entire program and fundamentally alters the way people think. It also allows leaders to reach for the impossible. We have learned four important lessons from our two-decade experience working with companies in business transformation (change) initiatives. During the target-setting phase of the transformation, companies should keep these four principles in mind.

Sam Palazzolo

How to Effectively Communicate Your Business Transformation Initiative – Five Tips!

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The Point: In business transformation initiatives, everyone scrutinize every detail – Stakeholders, Investors, etc. So how can you effectively communicate so as to manage the discussion? At Tip of the Spear Ventures’ Business Transformation Consultancy — The Zeroing Agency — We’ve seen business transformations achieve less than full-potential results because of communication. So, in this post we’ll explore how to effectively communicate your business transformation initiative along with five tips… Enjoy!

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Business Transformation Communication

As a leader, you know that there are always a few challenges present in your business. Communicating with stakeholders (Your superiors, subordinates, and peers) during a business transformation initiative is perhaps the most difficult aspect. Leaders must be prepared for increased scrutiny of disclosures and reporting. Leaders are subject to rigorous performance discussions about their managerial-abilities. Leaders in business transformation situations must convey humility and confidence about any mistakes made, as well as a belief that they can correct them.

Leaders, Team Members, etc. will scrutinize every financial statement, report and public appearance for signs of weakness or strength, regardless of whether the business transformation is a formal restructuring or strategic redirection. Competitors will use any hesitation or ambiguity to win customers, suppliers and key employees. All these challenges are present simultaneously, when core business management is most challenging.

Communication during business transformation is not an easy task. Our research suggests that there are some guidelines for communicating with stakeholders. Leaders can improve their focus and support their teams by focusing on the team’s perspective, monitoring changes in support base, identifying future milestones and building trust/credibility.

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Five Tips to Effectively Communicate Your Business Transformation Initiative

Tip #5 – Communicate from the Team’s Point of View

To achieve a successful business transformation, there must be input from many stakeholders such as investors, board members, owners, employees, customers, suppliers, government agencies, communities, and unions. It is important to communicate early and often in order to establish a consistent narrative for stakeholders and convince them that the business transformation is a win-win proposition.

Investors hold the purse strings. Employees may be motivated to work harder if they acknowledge a company’s achievements and reward it by increasing their share price. If investors remain negative about a company for too long, it can lead to low morale and defections that ultimately affect the viability of any business transformation. A decline in share prices can lead to activists launching attacks or to a takeover bid for a company with a lower intrinsic value. In such a situation, news that is not good news is often considered to be bad news. This process can be accelerated and accompanied by increased risks from a lack of communication.

Communication with investors and team members is important to set the tone for all discussions. It is tempting to adapt messaging for different stakeholders. We have found that this can lead to confusion, conflicting narratives and increased risks. Some cases ended badly because the company misrepresented what it said to whom. We have also seen messages from internal management leak to investors and other stakeholders (such unions) or messages meant for employees confuse employees about company priorities.

Tip #4 – Watch for Shifts among Core Supporters

Even in times of great fortune, smart leaders invest their energy understanding the views and values of their most important supporters. These “intrinsic supporters” base their decisions on a thorough understanding of the company’s strategy, performance and potential for long-term value. They are more likely than short-term supporters to support leadership during a business transformation and to help the company’s stock prices move as it develops. However, we have found that supporters can shift more in times of business transformation than in times of crisis. This can indicate the difficulty of the transformation ahead.

Leaders can benefit from a thorough analysis of these supporters to help them assess the potential impact of any improvements. External agents such as public-relations or communications firms can help to identify pain points. Leadership must address these issues head-on and not hide behind pleasant statements and platitudes. For example, one company’s supporters praised management’s efforts in addressing hot-button issues raised during meetings between top supporters and the board of directors.

Tip #3 – Share a Specific Vision for the Future

A company going through a business transformation should have a clear and compelling strategic vision about its plans to fix the root causes of underperformance or distress. This meant that one client had to recognize its shortcomings in capital discipline and commit to improving return on investment and short-term results. It meant that another client had to integrate ten previous acquisitions that had tripled its size, reduce fragmentation and build a more efficient central support system.

A vision should include financial goals and an outline of how they will achieve them. The organization should be open about the tradeoffs it is making between saving money to improve the bottom line and investing in the business to sustain its performance after the business transformation efforts are complete. We have found that investors are open to reinvestment as a key part of long-term value generation. They are willing to support if they know what investments are being made and when they expect returns.

Although being too precise about timing can lead to problems, investors often value and sometimes demand a guidepost. One client company, for example, set a midterm goal to grow earnings margin by 18 percent to 20 percent. It regularly reported on progress towards that goal during earnings calls and in reports. A company that was part of a cyclical industrial industry business had been earning lower returns for five years. It set bold goals to return capital invested at or above cost. This goal included estimates of margin and cost improvements from its largest divisions.

Tip #2 – Build Trust & Credibility

Leaders of companies that are underperforming will not be able to regain trust and credibility with stakeholders until they have a discounted version of the improvements they claim. To regain trust, leaders must be transparent and open about their work and inspire confidence in their ability to do the right thing.

Tip #2A | Get Rid of All the Bad News. Leaders should be as honest as possible right from the beginning. This is a well-known principle in politics, but it also applies to businesses going through a business transformation. The opportunity for a new leadership team to admit all past failures and begin fresh is a wonderful one. One example: A company’s stock rose after it announced a write off of over $1 billion. Investors and stakeholders saw this as a sign that the new leadership team would take responsibility for past mistakes and make tough decisions about exiting investments that were still taking capital and management’s time. The task of a current leadership team is more difficult. Strong leadership is required to critique one’s actions and sometimes risk being replaced. Investors and stakeholders might be more patient when a business transformation is in progress, but they will wait for evidence to prove that it is working. If bad news keeps coming in, even the most dedicated stakeholder or intrinsic investor’s patience will be worn thin.

Tip #2B | Establish a Track Record of Delivering. Only communicate the goals that you are confident you can reach–using metrics and milestones that you review regularly. Then prove that you can accomplish them. Credibility is important in a turnaround. Nothing can undermine it more than making promises and then failing to deliver. Metrics don’t have to be strictly financial. One company, which had repeatedly missed its output and financial targets, focused its business transformation goals on operational metrics to show tangible improvement in performance. For instance, it tracked progress towards overall equipment effectiveness. Although these operational metrics weren’t directly related to top-line performance they provided stakeholders and investors with a way for them to monitor their leaders and hold them accountable for making improvements.

Tip #2C | Offer Incentives to Targets. Talk is cheap and sophisticated stakeholders and investors tend to gravitate towards leadership teams that are willing to put their money where it is needed. Structured compensation packages that directly tie them to business transformation targets and having board members and executives buy significant amounts of stock in a company are signs of confidence and commitment to keep their promises. One company presented a new incentive plan for business transformation that aligned incentives between leadership and frontline employees based on similar performance metrics. Stakeholders and investors responded positively to this plan, citing it as an example of the company’s focus and commitment towards turning a new chapter and a reason to keep their current position.

Tip #2D | Increase Transparency. Honesty can be helpful not only in the financial guidelines, but also for specific projects. Two made a habit of describing — during earnings calls or investor gatherings — 10-20 projects that would improve operational efficiency, cash generation, and worker behavior. The stakeholders and investors noted that they were more impressed by the clear picture of the transformations that these companies underwent and that they believed that the margin improvement was more sustainable than shortsighted cost reduction.

Tip #2E | Be Confident. Leaders need to project confidence in their ability to weather difficult times and compete with other companies, as well as a positive outlook on the company’s future. They must also show humility when faced with distress, regardless of whether it is due to past underperformances or external factors. Stakeholders and investors will be looking at word choice and tone to identify signs of arrogance or overconfidence that can result from denial of past mistakes.

Tip #1 – Brand the Business Transformation

Although branding a business transformation might seem like marketing to many executives, it can be a powerful way to create a focal point for the outside world and amplify the story to make the rebuilding effort more credible inside the business. For example, a client company gave a succinct name to its transformation efforts and included it in all of its external communications. Stakeholders, investors and media began to mention the project name in their communications. This was a shortcut for the company’s impressive transformation. It made internal and external communication more cohesive and gave employees some external recognition.

Brands can convey a feeling of new beginnings. A campaign name can be attached to write-offs, exits of failed ventures, or even boring PowerPoint templates for earnings call slides. This will reinforce a consistent, compelling story about change and help build critical momentum.

SUMMARY

in this post, we explored how to effectively communicate your business transformation initiative along with five tips. In business transformation initiatives, everyone scrutinize every detail – Stakeholders, Investors, etc. So how can you effectively communicate so as to manage the discussion? At Tip of the Spear Ventures’ Business Transformation Consultancy — The Zeroing Agency — We’ve seen business transformations achieve less than full-potential results because of communication. Why?

Communication is not an alternative to performance. A stock price can only be driven by beating expectations and punishing short-sellers quarter after quarter. Leaders can build momentum by communicating with investors and other stakeholders in a thoughtful way to help them raise a company that is struggling to create new value through business transformation.

Sam Palazzolo

The Language of Business Transformation Leaders

By

The Point: You know you need to change, and developing the strategic plan for business transformation is part of the process. At Tip of the Spear Ventures’ consulting firm, the Zeroing Agency, we’ve spent thousands of hours with clients building their business transformation case. But there is an often overlooked aspect to the process — How and what you will say it! So in this post, we’ll explore the language of business transformation leaders… Enjoy!

language of business transformation leaders

Language of Business Transformation

Language of Business Transformation Leaders allows them to share key business outcomes in a clear and compelling manner. Transformative communication is a powerful tool for business executives to facilitate cultural and business change. It can be used for defining a vision, creating a mission statement, and crafting company direction. This facilitates the sharing of strategic objectives and related actions for improving organizational performance. It also empowers business executives with information regarding risks and opportunities for improving business impact and profitability.

The development of transformational language needs to take into account the organization’s culture and values. It should be flexible enough to meet the evolving organizational context. It should also inspire leaders to consider different ways of thinking and acting. In addition, business executives should be capable of communicating effectively and persuasively within a professional context.

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A Transformational Approach for Business Transformation Leaders

A Transformational Approach is necessary for business leaders to consider different business models and explore different ways of implementing change. It helps them identify business opportunities and evaluate alternatives. It leads business leaders to evaluate their own behaviors and effectiveness in achieving desired business results. It encourages them to develop new skills, enhance their emotional intelligence, and build new networks.

The primary goal of transforming a business is business success. The second goal is avoiding business failure. Transformational language allows business leaders to recognize the difference between the desired business outcome and the possible circumstances that may otherwise arise.

The Language of Transformational Marketing

The language of business transformation helps business leaders think about and act on different business scenarios. The goal of transforming business is to bring about organizational excellence. It also involves creating business solutions and policies to deal with problems of the business environment. To achieve business success, transformational leaders should be able to make the right decisions.

The Mechanics of Transformational Thinking

Transformational thinking can help leaders create the right decision. If a decision does not work out, it should not be continued. Transformational thinking in business therefore helps business managers avoid ineffective actions and select actions that lead to business outcomes. The language of transformational marketing encourages business leaders to be flexible and take corrective action as situations arise. It enables them to overcome obstacles and manage change effectively.

The language of business transformation focuses on the relationships among people within a business. It helps business managers to determine the root cause behind business failures and select the best possible actions to achieve business goals. The focus in transformational thinking is on the long term business outcomes. In the long run, the best business outcome is when the business is run efficiently. It results in the creation of value for the stakeholders.

Transformational thinking in business has the ability to improve the personal and professional lives of business leaders. It empowers business leaders to think critically and act responsibly. Transformational language of business helps business leaders develop and improve their skills and knowledge base. The language of business transformation facilitates communication between different people in a business. It also helps business leaders understand their interrelationships with other people and develop a more strategic approach towards their interactions.

Business Transformation Language that Motivates, Inspires & Attracts

Transformational thought processes to support collaborative problem solving and seek to establish clear targeting of future goals. They promote trust, build internal strengths and create a positive image. Transformational thinking and language of business have the ability to create positive images that motivate, inspire and attract followers. Transformational thinking and language of business help business leaders to plan for and achieve future business outcomes. It is an important component of business success.

A business outcome cannot be determined by a single decision. It is determined by a series of decisions and actions taken in a particular business environment. In order to make a business outcome happen, the planning process requires a commitment of time, energy and resources. Language of business transformation facilitates collaboration among business stakeholders, resulting in the adoption of important business decisions.

Language of business transformation can be used to describe and measure a business’ performance. The value of transformational thinking and language of business is evident in the fact that they are used not only by business leaders but also by ordinary employees. It has the ability to create harmony and understanding among people. The results of successful language of business transformational processes can be seen in increased productivity, improved employee relations, and an overall sense of satisfaction and fulfillment. A business needs extensive communication with its employees and external business partners in order to reach its business outcome.

SUMMARY

The Language of Business Transformation Leaders help them to lead their organizations successfully by building an inclusive culture, which is comprised of everyone from the boardroom to the frontlines. An inclusive culture is one in which everyone is invested in the success of the business and works together as a team to achieve business goals. Language of business transformation facilitates communication, promotes trust and understanding. It provides individuals with the ability to communicate about problems in a constructive manner and encourages them to contribute to the growth of the business.

Sam Palazzolo