CHAPTER 3
Examples of X-to-Y Change
What does an X-to-Y change look like? Let’s look at some examples. Each of these stories is based on a company we have worked with, but identifying details have been changed.
First we’ll look at two companies that struggled with their transformation. Then we’ll examine two more successful examples.
Bridgewater
This first example is about a company that failed to define the XY phase clearly enough.
Bridgewater is a U.S. professional services firm that is a broker for health insurance. Its clients are Fortune 500 companies. In business for close to 100 years, it is in a constant battle with its nearest competitor for the #1 or #2 position in its industry. Over several years, Bridgewater’s margins began to decline, as it lowered its bids to maintain business in a fiercely competitive landscape.
A few years ago, the board of directors brought in a new CEO from outside the company to lead Bridgewater to a new era of success. For several years, the company’s revenue had been flat or declining, and Bridgewater needed a turnaround. The new CEO, whom we’ll call Mark Wellington, fairly quickly assembled a new vision for the company. Not only would it offer health insurance brokerage services; it would also be a consultant to its clients who were struggling to adapt to the quickly changing healthcare environment in the United States. There were small pockets in the organization where this work had developed naturally. Now it was time to expand the work to the bulk of its clients.
Wellington’s perspective was that the shift to a more consultative approach would have three benefits: (1) it would create a new revenue stream that leveraged the firm’s core competencies while being less price-sensitive, (2) it would reduce churn by providing clients added reasons to buy their health insurance through Bridgewater, and (3) it would position Bridgewater as a C-suite advisor to its clients. This vision of providing advice was the Y future that Wellington introduced to the organization.
Immediately, many top executives and several opinion-leading producers got on board. After going through several CEOs in a short period, many welcomed this new and clear strategy. But at the same time, many of the rank-and-file brokers were hesitant. They felt that Wellington’s strategy would take Bridgewater into an area where the firm did not have well-defined expertise and work processes. Many people attracted to the insurance industry are naturally risk avoidant, and they saw many risks in Wellington’s new strategy. The fact that Wellington came in from outside the firm did not help.
Wellington was not recommending a giant shift in the firm’s strategy. In fact, his vision was always expressed as one of becoming the nation’s premier health insurance broker and premier employee health advisor. So from a distance, it looks like he took both X (health insurance broker) and Y (healthcare consulting) into account. But let’s see what happened.
Bridgewater fleshed out its plans, and then it hosted week-long workshops for its top 500 leaders and client managers. These events were expensive, well-orchestrated affairs. They combined elements of CEO town halls, sales kickoffs, and training programs. They included the voice of clients who articulated the need for Bridgewater to provide a more comprehensive offering. The training emphasized the need to expand each account manager’s understanding of the businesses he or she served, delving much more deeply into the clients’ strategies and describing the ways decisions about health insurance could impact those strategies. The sessions began with a well-articulated case for change. Participants were taught skills to help them manage relationships, understand the client mindset, become financially fluent, and talk to clients about health risks.
The sessions were enormously successful in that they were very well received, they were highly rated, and they energized the firm. Many people began pursuing the new approach with their clients and began to show early signs of success. However, the new revenue was slow to come. The advisory approach had long sales cycles, and there was a learning curve for the Bridgewater account managers. While the new approach was taking hold, revenue in the existing business continued to slide. A backlash grew among those who never supported the new strategy. In less than a year, Wellington was fired by the board of directors, and the new strategy was scrapped. A number of the champions of Wellington’s vision later left the firm.
What happened? Why did Wellington’s strategy fail so quickly? Would it have survived and succeeded if given more time? Here’s what we believe occurred. While Wellington and his team always communicated a vision of both X (brokerage) and Y (consulting), they did not create the execution plan for selling both X and Y at once. As often happens, they assumed that since X was the legacy business, they should focus on what was new and different (Y) and emphasize how to do and sell that work in their presentations. What the rank-and-file missed was a sufficiently clear explanation of the XY phase. To them the message was “It is time to turn off X and turn on Y.”
In our view, the transformation would have been more successful if Wellington had not tried to transform the whole firm at once. It would have been better to identify, say, 100 accounts to focus on initially and roll out the training only to those account managers. Once those accounts showed success, the training could be rolled out to the next 500 or 1,000.
Wellington obviously also failed in setting expectations with his board and top leaders. The firm was ready for fast results, and Wellington either underestimated or failed to explain the time it would take to execute the new approach. As a result, the clock ran out before he could show sufficient success.
Greyhound Technology
This next example is about a technology company that has been unsuccessful in articulating a clear Y vision.
Like many in its industry, Greyhound Technology was founded by a small team that left a much larger technology company, which the team members felt wasn’t innovating fast enough. The Greyhound Technology founders worked in a garage for a year, perfecting their approach. What Greyhound Technology was able to accomplish was an entirely new combination of hardware and software to manage power use and heat dissipation by servers. As data centers grew throughout the 1990s and 2000s, the company had huge success, even managing through the dot-com bubble and global financial crisis. However, the storm that ultimately threatened the company’s future came in the form of a cloud, the cloud to be specific. The cloud allows companies to store their data in remote servers, often managed by outside companies, and to pay those other companies based on the amount of server capacity they need at any one time, rather than making an up-front capital investment. It has revolutionized both how servers are used and who buys them, hitting Greyhound Technology right where it lives.
Historically, Greyhound Technology sold its offering to the IT directors who managed their company’s servers. Now, with so many companies outsourcing their servers via the cloud, Greyhound Technology must sell to a small number of cloud providers, who demand much lower prices in exchange for volume. These companies are competing at extremely low margins as they build share, so they are sensitive to every small cost. Over time, competitors have mimicked Greyhound Technology’s products. While they do not offer the same performance quality, they are close enough to be considered low-cost substitutes.
The arrival of cloud computing occurred over several years. Yet the leadership at Greyhound Technology has not been able to clearly define its go-forward strategy. The strong engineering culture at Greyhound Technology creates a belief that market challenges can all be solved through product innovation. In fact, Greyhound Technology has released a series of new products that run private clouds (where companies build their own server farms) or hybrid clouds (where companies use a combination of public and private clouds). However, the shift to the public cloud seems unstoppable (at least at this moment), and revenues are falling. Some analysts are calling for Greyhound Technology to be acquired by another company or to acquire a more innovative company itself.
The CEO of Greyhound Technology is one of the original founders of the company, and like many founders, he finds it hard to imagine that large change is necessary. His Y strategy is a minor variation of the X strategy. If there are times when a Y vision can be too aggressive, there are also times when a Y strategy can be too timid. Here we have an example of a company that is struggling with the definition of XY, not because Y is too far from X, but because Y is too close to X. As a result, the sales enablement team struggles to create meaningful messaging and approaches for the salespeople. From the salespeople’s perspective, it seems like they are expected to offer their customers five different flavors of vanilla. New terms, new processes, even new offerings, but the same vision. Ultimately, the strategy is not inspiring employees, or Wall Street analysts, for that matter. As often happens in these cases, some leaders and top sellers are leaving Greyhound Technology for more innovative competitors or going to other tech firms.
Let’s turn now to an example of how to successfully change the way people sell.
Fischer Bank
Fischer is a global bank, based in Europe. It has four primary divisions: a consumer bank, a wealth management division, an investment bank, and a corporate bank. Built up from acquisitions over two decades, the bank has struggled to operate as a single entity. When a new CEO was appointed several years ago, he made it his top priority to improve the bank’s cross-selling effectiveness.
Because the bank was built on so many acquisitions, there were separate cultures and operating strategies in different units (and even within each unit). More critical was that people in each unit did not have relationships with people in the other units, so they did not trust them. The new CEO, whom we’ll call Oskar Becker, set out to change how these groups operated. He focused on three divisions: the wealth management business, the investment bank, and the corporate banking division.
It was quite typical at the time for a wealth management advisor to have a client who was also the CFO of a publicly held company. However, historically there was little or no chance that the advisor would refer that CFO to Fischer’s investment bank or corporate bank, even though the CFO is the ideal customer for those units. These advisors were reluctant to make referrals because they feared that something would go wrong with the work done by the other units that would threaten the wealth management relationship. The same situation was equally true for the other units. Both the investment banking and corporate banking units had executive-level clients who were perfect prospects for the wealth management group, but they would not provide referrals for the same reason. All that everyone saw was downside risk.
Becker decided that the bank needed to begin operating with a cross-selling mindset. To that end, he launched a program that took the top 1,000 bankers worldwide through a simulation where they were confronted by clients who had needs that could be served by all three units, though they were currently working with only one division. The banker with the existing relationship had to figure out, by collaborating with people in other units, how to cross-sell this client. Equally important, the bankers had to preserve and expand their current business.
The competitive simulation required teams composed of people across units to create a plan for cross-selling this client. Then they had to present to the client across a series of meetings. The clients were played by top executives at Fischer Bank, which increased the pressure. The program also included a workshop where bankers described their top customers and formed plans to work together to cross-sell them. After the program, those plans were put into action and tracked.
Taking people through the process of planning and selling together had several outcomes. First, just the process of working together in a high-stakes competitive situation built trust. That made it easier for people to work together after the program. Second, the bankers began to see that cross-selling could work, and they were learning and practicing the language and conversations that could be effective. Third, they could see that top management took this effort very seriously. The most important outcome, however, was the financial results. Within a year of the program, Fischer Bank identified $1 billion in net new assets attributable to cross-selling directly driven by the program.
In this example, the Y vision was a different way of selling. It involved selling with colleagues in other divisions to offer clients a wider range of products and services. (The X approach was continuing to sell in silos.) What made the effort successful was that the XY approach was clear: continuing to sell independently while also finding opportunities to cross-sell collaboratively. What made the effort successful quickly was that Fischer Bank took its top people through a simulation of XY. That enabled people to picture and to feel what they needed to do.
Exactitude
Now let’s look at an example of a company that successfully changed what it sold and did so by identifying the XY midpoint clearly.
Exactitude was the first company to put business tax software into the cloud. As an alternative to expensive in-house software systems, Exactitude had fast success, experiencing exponential growth for a decade, while legacy players in its industry took time to adapt their products for cloud-based use. Over time though, competitive offerings emerged. Exactitude has held onto its market dominance by offering a faster, simpler product.
The visionary leader of Exactitude began articulating the future for the company a few years ago. That future involves offering more cloud-based software to help businesses more quickly and more simply address a range of business functions. This is the Y future for Exactitude, providing its customers with a range of cloud-based business software better than they can obtain elsewhere.
Exactitude has launched products that are complementary to its original business tax offering. It now has a set of cloud-based software offerings that replace the need for expensive payroll services, and it is launching a performance management system to make it easier to provide employees with fast feedback using mobile devices.
Sellers at Exactitude are segmented by the size of the company they sell to: small business, medium business, or large companies. Salespeople in all three segments offer the full range of Exactitude’s offerings, since the buyers they work with are often responsible for investments across tax, payroll, and human resources.
The introduction of the new product offerings to the original business tax software is an example of how the XY approach can work successfully. Most customers enter through the X door, and all Exactitude salespeople can tell the X story. Then they have a clear process for upselling the customer to Y. While the leaders at Exactitude would be the first to say that they have made mistakes, are still learning, and expect even better results in the future, they would be proud to share their success to date.
For Exactitude, the Y vision was to have a range of cloud-based software that simplifies their customers’ business needs, particularly in niches underserved by the big software providers or better served through cloud-based offerings. In launching this vision, Exactitude leaders have been careful to frame it within the existing approach to selling business tax software. That helps create the XY clarity that salespeople need. For example, Exactitude carefully communicates the new conversation that sellers should have with existing buyers. That conversation includes discussion about the existing X product (business tax software) and the new Y products (payroll and performance management software).
When some companies expand their brand, they often frame it in entirely new terms, trying to become a very different company. Exactitude has been careful to frame its new vision as very connected to the core of who the company has always been and what customers have come to expect from it.
Conclusion—Expansive Vision, Incremental Strategy
These examples illustrate several important points about sales transformation. First, as in the Bridgewater example, a transformation can be abandoned if the expectations require moving too fast, without enough time in the XY phase. Second, as in the Greyhound story, the Y vision has to be compelling, not just incremental. Just as the Bridgewater example shows the consequences of moving too quickly, the Greyhound example illustrates being too tentative. In the third example, about Fischer Bank, we begin to see how a clear XY approach can be communicated and to understand the benefits of practicing not just Y but XY. Finally, in the Exactitude story, we see the benefit of an expansive vision with an incremental execution strategy that was easy for salespeople to understand and implement.