We will interrupt our regularly scheduled series to talk about a significant issue for my technology clients. This is a topic I’ve discussed at length with numerous CROs, SVP of Sales and sales managers over the past few months. And it’s one that is both top of mind and frustrating for these sales leaders.
These experienced professionals lead B2B sales for legacy technology companies. What are the common problems they are grappling with?
1) Why are sales in the USA/NA flat or barely growing (read not hitting our growth targets), while technology sales in EMEA and APJ are doing great?
2) And why are fewer and fewer of our sales reps consistently hitting their numbers?
These problems started raising their ugly head several years ago, appear intractable, and the trend only seems to be getting worse. What’s going on here?
Publicly available research gives ample clues. Technology sales will vary over time, but are B2B customers spending less on technology than in years past? It doesn’t appear so. Gartner data shows the overall spend on technology is increasing at 3.2% globally for 2019. Are data and applications becoming less important to the customer’s business in 2019? No, they’re more important than ever—in most cases they are critical to business operations, and for many companies they have become the true market differentiator for that business! If technology sales are increasing and the value of the data and applications to the business are growing, what’s the issue? This appears to be a “target rich environment” to sell into, right?
In short, the answer is that B2B customers are dramatically changing the way they buy technology, yet legacy technology sales organizations are not changing the way they sell. And the biggest change is who is buying technology. According to IDC, over 50% of global IT spend has now crossed the threshold and is being made by the lines of business (LOB)—not IT. When broken down geographically, it looked like this in 2018:
- USA approximately 60% LOB spend
- Western Europe 48% LOB spend
- Asia approximately 35% LOB spend.
- We can assume that all of EMEA is somewhere in between.
Western Europe is projected to cross the majority of IT spend from the LOB by 2021 with Asia following approximately 3 years later. We can conclude while selling technology the traditional way in Europe and Asia will still work most of the time today, its days are numbered. I predict B2B technology firms will soon face the same challenges in EMEA within a couple of years followed by APJ a few years after that.
Not surprisingly, these trends don’t break down evenly by industry segment. Globally, discrete manufacturing (53% LOB) and process manufacturing (52% LOB) lead the way followed by professional services (51% LOB). The largest consumer of technology, financial/banking, is currently at 48% LOB spend and close to the tipping point. By 2021, only construction and telecommunications are expected to still have a majority of spend led by IT.
The implications are clear. If you continue to focus on selling to your traditional IT contacts, you are selling to a group that is seeing its relevance to the business drop and therefore its budgets drop. Expect those sales to be drawn out, highly competitive and very price sensitive.You might also expect lower conversion rates.
If your Value Proposition is primarily IT focused, you are also becoming increasingly irrelevant to the customer’s business—where the technology money is! Moreover, research by McKinsey indicates that not enough end users from the business are being involved in making technology buying decisions today. As a result, too often technology spend may solve many “IT” issues but does not deliver on enough of the right business outcomes. Hence the oft quoted statistic that over 70% of business initiatives (including technology) do not deliver on the promised business value.
Microsoft, arguably one of the most important technology companies in the world, undertook a significant (and much heralded) reorganization last year. The driver of this reorganization was to become more relevant to the business of its enterprise customers, which is the largest and fastest growing segment of its business. Microsoft realizes they must bring more business value to these customers.
Whether you are helping customers store data, access it through applications, mine data for insights, or protect critical data from leakage and cyber threats, the answer is clear. Your real customer is increasingly your IT customer’s customer (the business). At a minimum, you must help your IT customer sell and deliver value to that business customer. Ideally, you should be selling to both IT and the business. But that requires a different selling motion to a different target audience. And now we’ve come full circle on the vexing issues faced by B2B technology sales.
In the next post, we’ll detail how “Outcome-Based Selling” should be a strategic tool for addressing this shift in buyer behavior, but also how it can actually exacerbate the current situation if we only focus on the “selling” part.
SteveTags: B2B, IT Solutions