Stanford's Lattin: Building and Managing a Sales Organization

Sunny Palo Alto can at times seem far removed from the bleak realities of running a business in today's economy. But Jim Lattin of Stanford's Graduate School of Business (GSB) makes sure his marketing courses prepare students for the cut-throat, numbers-driven, results-oriented "real world" that awaits them as entrepreneurs and brand managers. One of his most hands-on classes is an MBA elective course on sales force management.

BNET: How did you get involved in teaching such a tactical, rubber-to-the-road course on sales?

Lattin: One of the directions I took in my teaching, about five years ago, was to collaborate with Mark Leslie, a lecturer at the GSB and the former CEO of Veritas Software [a storage management company]. Mark and I developed the course on sales force management. It really grew out of a student initiative. We have a center here for entrepreneurial studies, and many of the students asked why there wasn't more in our curriculum about sales. They said, "We hear from all kinds of people that when we start companies, sales is going to be something we have to understand, it's the first part of the organization we have to have in place." For a long time, sales hasn't been taught at Stanford and other business schools because we really don't produce faculty who are capable of teaching sales on their own. Because it has a very real world component, it's very intimidating to new academic faculty who may not understand all of the ins and outs of it. So, this model of putting an academic and practitioner together to create a class is an interesting one.

BNET: How do you structure the educational process for the students?

Lattin: We don't focus on how to sell but how to build and manage a sales organization. We take the students through the life cycle of creating the organization, building it out over time. Then we address the challenges inherent in managing an organization as it gets bigger and embraces multiple products and merges multiple sales forces and attempts to address demand in multiple countries. As a part of the curriculum, we've instituted a sales simulation game. We wanted to teach the challenges in coming up with a good sales forecast. How do you create an organization that is capable of delivering the information you need to forecast demand accurately as a company? It struck me that you couldn't simply lecture abut this concept, you had to put students in the situation to have them understand it. We start them in the role of sales reps who are given a quote, leads, and a territory. They need to allocate their time to qualify leads, close sales, etc. We also harangue them about forecasting: "Tell us what the demand is going to be. Tell us how many deals you're going to close" and so forth. About halfway through the game, we promote them unexpectedly to sales manager. Now, they are responsible for a district and have sales people reporting to them. The students realize that as reps, all they cared about was making their number, and they've developed all sorts of inaccurate heuristics for sales forecasting. It gives students a feel for sales culture in an organization and is one of the unique things about what we do in our class.

BNET: So, what lessons come out of the simulation, and how can real world sales managers learn from them?

Lattin: If reps under-promise, they look like stars when they surpass the goal. That leads to high variance and systematic bias within an organization. What managers have to figure out is, "How do I break these processes down? How do I keep people from sandbagging? How do I strip out subjectivity in the forecast?" Part of the learning is to see why the process is not serving you well. A salesperson is not motivated at all to change the process. They adapt within the framework -- so they can concentrate on making their quota, making money, and going to "club" at the end of the year. Each week, we announce their names of the top 20 percent of the students and tell them they are going to the "President's Club" -- which is totally fictitious, but just recognizing them in front of their colleagues is crazy motivation. They all want to get into this pretend club. At Stanford, we have a very cooperative culture, and there is a norm of grade non-disclosure. There's very little comparison among the students. But in this class, when they are selling, I have a clipboard with all of the students and their sales performance, and they are all ranked from best to worst. I pass it around the class and make everyone sign their names. They quickly realize that the sales culture is very different from the warm and fuzzy Stanford culture we have.