Winning in the
Commoditization Wars
How Georgia Pacific Resins Adapted to their Changing Marketplace
The twin trends of consolidation and the rise of centralized purchasing have given customers in many industries increasing power to drive down prices and demand more services from a shrinking list of suppliers.
As one of the largest suppliers of chemicals for the wood panels and paper industry, Georgia-Pacific Resins (GPRI) found itself fighting for profitability in the late 90's as cost conscious customers and price cutting competitors drove margins down. Despite unquestioned leadership in technology and innovation, GPRI struggled to get customers to reward, by paying premium prices, those technical assistance and research and development projects that GPRI was certain were bringing value to the customer.
Instead, customers were pushing all their suppliers into a bidding war, in an effort to make price the only element of consideration in the buying decision. As John Hines, business manager of GPRI's industrial resins product lines, describes it, "margins were being driven so low that everyone was being forced into the low price game. In an attempt to win business, GPRI's sales reps were giving away costly consulting time and technical resources to demanding customers who only wanted to pay commodity prices for performance products." That is to say - a customer's operations management staff demanded and appreciated the added value, but the same management was allowing their purchasing group function to put the squeeze on prices, regardless of the value received from the supplier. The result, according to GPRI's vice president Rick Urschel, was that "margins had dropped to the point as to no longer justify re-investment in the business - a very serious situation, for not only GPRI, but, in the longer term, for our customers as well."
Still strongly committed to the mission of delivering innovation and the highest possible customer value, GPRI's management team decided that somehow they would have to change the game and change the rules - to a game where the customers would change their behavior and be willing first to recognize, and secondly to pay for the value delivered.
Prime Resource Group began working with GPRI in 2001 to identify the true value they were delivering to their customers, and opportunities where they could deliver more value. Prime Resource Group also worked with GPRI to identify customers more likely to pay for GPRI's technology, expertise, and premium service at the pricing levels required to sustain a viable business. Prime Resource Group's Diagnostic Business Development Process offered the strategic tools and structural discipline the GPRI sales force needed to shift these customers from a focus on the lowest price to a focus on the highest business value. GPRI's business manager for paper chemicals, Bob McDonald, recalls that, "the whole concept of Diagnostic Selling matched very well with our core technology and product innovator position." Instead of presenting a mix of products and asking the customer what might fit, McDonald explains, the sales force would learn how to "go to a customer site and understand the root issues - find out what they are trying to accomplish at the corporate level, as well as delving into deeper levels with the mill."
New access strategies would open the doors to diagnostic discussions with the right people, and tools such as the Discussion Document would summarize the results of a thorough investigation of business issues and problems. In the Design phase of the Business Development Process, a detailed dialogue with decision makers would lead to a quality decision about the right solution. At the same time, the GPRI sales team would be able to ensure that the project size and financial structure would support the R&D needed for execution.
The Manager-Led Solution
Having seen how the Diagnostic process would fit, the remaining question concerned driving the new skills and disciplines through the sales organization quickly and thoroughly. A tradtional stand-alone "training event" was unlikely to achieve the genuine change in sales culture so urgently needed to align sales practices with the newly adopted GPRI market strategies. To embed the Diagnostic approach in the field, Jeff Thull, President and CEO of Prime Resource Group, suggested that GPRI implement Prime Resource Group's Manager-Led Sales Performance Leadership program. This innovative, multisession program, designed to be facilitated in the field by sales managers, would make the regional sales managers "part of the process, rather than just being bystanders," as Bob McDonald explains.
Prime Resource Group introduced the sales managers to the Diagnostic Approach in workshop sessions that provided the foundation for launching the in-field program. Using materials customized for GPRI by Prime Resource consultants, regional sales managers conducted 16 two-hour learning sessions with their own sales teams. For each session, sales reps prepared by listening to an audio overview of key concepts and conducted pre-workshop exercises in the field. With the rest of their team, the reps participated in workshop discussions led by the manager, and practiced the new skills they would apply with their customers. Each workshop was followed by specific application exercises. Sales managers debriefed with their peers and Prime Resource consultants through monthly teleconferences to provide coaching tips and refresher reviews of skills, models and processes.
Accelerated Application and Adoption by the Culture
The accelerated learning curve and rapid achievement of results experienced by GPRI is attributable in part to one of the main hallmarks of the Manager-Led approach - the ongoing use of new skills with real customers. Using the bird in a nest analogy to describe the process of continuous field application: "You have to fly on your own. You have to get out there and practice with customers. Likewise, there can be no substitute for direct coaching and mentoring of field sales personnel by their immediate supervisor."
At the same time, success breeds success. Each time someone in the field came back to report a positive result, the Diagnostic process gained credibility, the sales manager got credit, and the whole team gained confidence. Hines recalls, for example, that his group experienced a real revelation as they began using the specialized Diagnostic conversation maps. "As we started to use the A-Z questions," he says, "we found out that what we thought was important to our customers, wasn't. This had a powerful impact, as customers started to open up in unexpected ways." The old habits of "premature presenting" began to fall away as sales reps saw for themselves how receptive customers were to their new approach.
The adoption of the Diagnostic disciplines and practices was greatly enhanced, according to McDonald, by the managers' assuming responsibility for the learning. As he points out, "there's nothing more powerful as a motivator than knowing you'll have to teach something." He also notes that because the managers are so close to the day-to-day customer issues, they generated a lot of dialogue about real problems and real accounts. Managers would go out into the field with their sales reps, and incorporate what happened into the next session - reviewing and recapping what happened and discussing how to use a Diagnostic tool or strategy to accomplish a goal in an account.
Winning with the New Rules
A key objective of the program was to transfer the expertise of Prime Resource Group consultants to GPRI leadership, enabling GPRI to self-sustain the program. Since 2003, Urschel explains, the systematic changes represented by the Manager-Led Sales Leadership Performance Program have become part of the personal objectives of each and every salesperson and sales manager. The concepts have become "integrated into the business and directly tied to compensation." An experienced internal coach is conducting ongoing reviews of the process, going out on calls in each region and auditing how effectively sales reps are using the Diagnostic skills and tools. In McDonald's group, the four stages of the Diagnostic Business Development Process have been integrated as part of the quarterly operating performance review, with each sales rep reporting on accounts and opportunities in the context of where they are in the Diagnostic process, and the region reporting in terms of how business is progressing overall through the stages of Discover, Diagnose, Design and Deliver.
Hines and McDonald both have examples of how this initiative has affected their ability to escape the "commoditization trap" and return to their chosen strategy of differentiation through high value innovative solutions. "We now have a much stronger understanding of the customer's businesses and their problems," McDonald says, "and our customers have a greater appreciation of how our solution addresses their issues. It's an appropriate way to act if you are a product innovator."
For his part, Hines points out that recent customer survey results for his group, Industrial Resins, showed significant improvement relative to the competition in the categories of Listening, Technical Service, Attitude, Sales Personnel and Innovation.
McDonald fully expects this process of improvement to continue. Of the Manager-Led experience, he says, "it's changing our culture. It's an evolutionary process, and we're getting there. Our people are talking the talk and understanding that this is how we are going to do business. The receptivity of our customers to our new approach is icing on the cake."