article

Why Good Salespeople Make Bad Decisions

Posted: 12/2002

Why Good Salespeople Make Bad
Decisions

By Dr. Wayne M. Thomas, DBA

Editor’s Note: The author’s last
article, "How to Avoid Being the Designated Loser," in the October
2002 issue of PHONE+ was so well received that we are following it up with a
further look at reasons why the high drama of the large, low-probability sale
can blind sales reps and their managers.

THIS
YEAR’S NOBEL PRIZE for economics was the first to recognize the fascinating work
about the strange choices we make under uncertainty when money is involved. We
do strange things, but now at least we know why. Professor Daniel Kahneman, one
of two winners, explained the behavioral oddity of why we walk 20 minutes to
save $5 on a $15 calculator, but won’t make the same trip to buy a $125 jacket
for $120, even though each action would produce exactly the same $5 savings. As
I researched work by Kahneman and others, I realized that this fascinating
science of decision-making explains many poor decisions we observe in field
sales. Why, for example, do sales reps continually chew up resources in
low-probability sales? I found some fascinating answers.

Sales representatives make choices
constantly. The best sales reps learn from their experiences and develop sales
intuition that improves their success in future deals. Novices and reps who do
not learn from their experience are regularly surprised when they lose deals,
even those poorly qualified in the first place. In those cases, a pro would have
seen familiar cautionary patterns and moved on to an opportunity with a better
probability of success. Professional telecom sales reps "know when to hold
’em and when to fold ’em." What is it about the high drama of the large,
low-probability sale that can blind sales reps and their managers?

This reminds me of an account team
that was oblivious to clear signs that the fix was in for another vendor. The
team was being shopped for their price so the buyer might complete his due
diligence by comparing several prices before doing what he had planned to do
anyway — give the order to his preferred vendor.

These were the facts: A Fortune 100
high-tech firm, with $100 million in services support for infrastructure and
call centers, was looking to outsource. Scott, the sales representative, had
called on the firm for more than a year. One day he received a surprise call
inviting him to be one of four bidders on the request for proposal (RFP),
provided he could present it within 14 days.

He gained an extension to 21 days
and engaged his company into a major resource commitment to meet the still-tough
deadline. During the weeks that followed, it became increasingly obvious that
the company was being shopped. Yet, the sales team persisted and lost the bid.
Using studies by Kahnemann and others, we can see how this happened.

The trigger gets pulled. A
common first misstep toward a bad decision, according to Robert Caldini in his
book Influence, is the tendency to get triggered into action by a single
feature of a situation. As a shorthand way to handle complex issues, we replay
internal tapes that guide us based upon on what we’ve done historically in
similar circumstances.

Reps who are true professionals
circuit-break that tendency, first taking in all the details of a situation, and
only then looking for similar shapes and patterns in their experience. They flag
whatever appears out of the ordinary, according to cognitive psychologist Gary
A. Klein. They then work forward to confirm or disconfirm their intuition about
the deal.

The less savvy sales rep tends to
work backward from his/her goal. Scott saw this deal as the "opportunity to
get a $100 million piece of business at a Fortune 100 firm with a decision in
three weeks." Then he began to address individual details without a clear
view of the overarching shapes and patterns involved.

These two approaches of the novice
and pro are like the intern and experienced physician diagnosing a complex case.
The intern’s tendency is to identify and treat individual symptoms, while the
experienced doctor identifies that the symptoms fit an overall pattern of a
disease, which he treats holistically.

"We all think alike, no one
thinks very much," wrote columnist Walter Lippmann. This is an apt
description of the chaos back at Scott’s company. With little time and such a
large opportunity, everyone’s adrenaline was flowing. It was November. No one
seriously calculated the odds of winning, since this order was the only
remaining hope to achieve the year’s sales target. The politically correct
question became, "What do we need to do to get the business?" The
never-articulated question was, "Do we really have any chance at all?"

Overconfidence. Then, a human
behavior principle that makes no scientific sense at all clicked into operation,
the principle of overconfidence. Once we are committed to something, especially
publicly, our commitment grows and we act with great consistency to prove it. A
supportive study by sociologists Robert E. Knox and James A. Inkster proved that
even though there is no change in anything, people feel more confident their
horse will win after they place their bet than before. We don’t even have to bet
to be overconfident. It is in our nature to be predictably overconfident even in
experiments that warned and paid participants to beware of this, according to
consultants and professors J. Edward Russo and Paul J. H. Schoemaker. Scott’s
team was no exception.

The power of reciprocity. The
rule of reciprocity is a powerful one demanding that if someone provides us
something, we have an obligation to repay the gesture in kind. Author Caldini
reports that the principle is so strong, we feel compelled to comply even if we
dislike the person. As Ralph Waldo Emerson said, "Pay every debt, as if God
wrote the bill."

A university professor demonstrated
the power of reciprocity with a simple experiment. He sent a slew of Christmas
cards to people who had never heard of him. He got stacks back and no one even
asked who he was. Scott came under the rule of reciprocity here, and it took him
another step down the road to compliance by providing a bid for a low-odds deal.

The prospect knew or should have
known that no vendor could provide a well-considered bid in two weeks. So, when
Scott asked for a week’s extension, it was magnanimously granted. You give a
little, you get a little. If the earlier deadline were impossible, the new one
was nearly so, but now Scott felt obligated to comply. Scott himself initiated
the deadline extension, a feather in his cap back at headquarters and now, a
debt to repay.

Consistency. Looking
consistent is a critical attribute for business success. Inconsistency gives off
bad signals, such as not thinking something through or displaying poor judgment,
crimes that can diminish the luster of a promising career. Defending one’s
position, even if it begins to look foolish, can become justified by the need to
appear consistent. And so it was for our rep in this selling situation.

Scott told the 15-member support
team he thought they had a good chance to win the deal. With that confidence,
the team had conference calls almost daily and some members focused exclusively
on details of the RFP at the expense of other projects. Though questions arose,
Scott’s public confidence grew like the bettor who placed his paycheck on his
favorite horse.

Trust in Authority. Scott’s
contact was the department manager, who convinced Scott that he alone would make
the decision, which "will be rubber stamped." In presenting himself as
the authority in the decision, the contact appealed to the rep’s sense of trust
in authority. After all, most of us have learned that working along with
authority is usually a successful way to gain rewards. Working against authority
has never panned out as well.

What Scott failed to rationally
consider is would a $100 million sale be a single individual decision. The
greater the risk and dollars involved, the larger number of people involved in
the decision. There is a perfect correlation between risk and complexity of the
sale.

Emotional Intelligence.
Emotional intelligence includes the ability to read others accurately. Scott was
emotionally involved in this "deal of a lifetime," but not reading the
situation or the players shrewdly. Too late, he learned his competitor was
positioned with the company president. Given this relationship, it is highly
unlikely this is a fair bid opportunity. In that sobering moment Scott realized
his reaction to his contact’s reassurance was a mistake. It was time for Scott
to ask his CEO to become involved in the deal. A savvy rep would know that $100
million decisions are always reviewed and influenced by a host of executives. He
should have brought in his senior executives earlier.

Sunk costs. Senior managers
know when they get a call for help, a deal is in flames and that they are looked
to as the great firemen. Even though the rep and his team know the deal is in
trouble, they will be in bigger trouble if the loss goes without pulling out all
the stops and inviting the CEO into the deal. Though unspoken, everyone
understands what is happening here, and they execute the drill anyway. Scott’s
CEO called the other CEO and, of course, received assurance that Scott’s
proposal would get a close examination and had a fair shot at winning the
business.

The day of the big presentation
came, bringing together Scott’s two corporate vice presidents, technical
specialists and others — 10 in all. The presentation meeting became a
nightmare. Scott’s contact hadn’t given him the courtesy of a "heads
up" that the criteria for the bid had completely changed and the proposal
would have to be redone. They were completely unprepared. However, they were
told that they were selected as one of two companies to bid on a new RFP. They
now had so much effort invested that they couldn’t resist the temptation to take
the final few steps to completion of the process. They took the bait to stay in
the game. The rational decision after evaluating the evidence would be to walk
away.

The "sunk cost" fallacy
creates a feeling that there is so much already invested into an outcome that it
would be foolish to walk away from the opportunity before seeing it through. In
short, there is a compulsion to "pour good money after bad."

Emotions. They were trapped
between the Scylla of informing their CEO that they were pulling out of the deal
with only one competitor to beat, and the Charybdis of having even more
resources engulfed in an impossible effort.

It is human nature when making
decisions in uncertainty to pay more attention to the bad side of the situation
in order to avoid it. Scott realized that he had a 100 percent probability of a
painful loss review with the CEO if he threw in the towel at this point. He
calculated a 30 percent chance of winning the deal. The team went for the 30
percent chance, at least forestalling the 100 percent probability of pain.

Decision regret. What’s more,
by continuing in the game for the last round, the team also escaped the nagging
"decision regret" that would come had they pulled out of the bidding
before its denouement. Psychologists describe decision regret as focusing on
what you might have had, if only you had stayed to play the game. This was a
$100 million game and you can’t win if you don’t play. They agreed to roll the
dice again and to submit another proposal.

Another month elapsed and more
resources became consumed. Then, surprise, the award went to the competitor.
Surprise again: The customer asked if the team would stand at the ready should
negotiations fail with the winner for a suitable contract. No surprise: they
agreed.

The Post-mortem. There was a
time when many sales managers would applaud the likes of Scott who was pushing
all the way through, playing to the end, never looking back. They didn’t want
their sales reps to ever let go.

Times have changed. The expense of
taking a complex sale through the entire sales cycle can be astounding. Most
companies don’t have the infrastructure to dedicate to low-probability sales.
The most valuable sales people recognize the facts as they are and choose
deliberately to stay or go depending upon the realities of the situation. They
avoid being seduced and enchanted.

Dr. Wayne Thomas is CEO of Thomas
& Company Inc., a Sudbury, Mass.-based management consulting firm. He also
is chairman of the Telecommunications Industry Association’s network sales
channels group. He can be reached at [email protected].

How to Make Better Decisions

Test the offer. There are flags that
one should spot along the sales cycle. Learn to maximize the utility of your
resources. Be prepared to walk away.

Expand your contacts. A
relationship based upon a single contact is unquestionably shaky. It helps your
contact tell the truth when you are relating to others in the company.

Commit to action. The sale is
only moving forward when the buyer commits to action. Just because you
are working like a dog doesn’t mean anything relative to the outcome of the bid.

Stay focused. Don’t get so
distracted by this opportunity that you drop the rest of your pipeline. Play the
odds and never stop prospecting.

Avoid enchantment. Be aware
of influences that tend to create an automatic response in you. Institute an
internal circuit breaker before falling under their spell.

Avoid overconfidence. Lower
your confidence level in assessing uncertainties. We are almost always
overconfident about what we think we know. For others, remember that outside
their area of expertise, "experts" have no more skill than anyone
else.

 

The
Links

Thomas & Company Inc. www.thomasandcompany.com


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