Increasing customer responsiveness and sales velocityDebunking the myths of quote-to-order (Q2O) improvement

Increasing customer responsiveness and sales velocity 1

When we think about the customer experience, what primarily comes to mind are the sales and support processes. However, we rarely think about how the supporting sales operations such as quoting, pricing and order management activities impact the customer’s buying experience and satisfaction with the purchase. The Quote to Order (Q2O) business process crosses multiple business functions and serves as the bridge in the customer’s experience that can often be overlooked. In this article, we explore the myths and realities behind this cross functional

business process. We compare common perceptions against data driven facts to highlight the impact of an efficient and effective Q2O process.

Q2O is a critical process that plays an important role in enabling companies to achieve their strategic priorities. These activities should be structured to support CXO objectives and if designed appropriately can be a competitive differentiator.

Strategic considerations of Quote to Order

Priorities for CXOs Implications

Customer responsiveness •Speed: Customers expect 24-hr quote turn-around time and long Q2O cycles can impact customers

•Quality: customers expect accurate quote and order processing customized to their needs, regardless of complexity

Scalable for growth •Volume: Growth by manual labor is not sustainable, efficient processes and tools to handle large deal volumes is critical

•Efficiency: economic downturn and tendency to focus on front vs. back office forcing companies to do more with the same

New business models •Flexibility: New technologies demand business model innovation (e.g. software as a service, leasing, capacity on demand), which impacts Q2O requirements

•Knowledge: understanding implications of various business models (e.g. pricing, revenue recognition) will be key to effective Q2O execution

Globalized operations •Decision makers: Geographic expansion and emerging markets forcing sales operations to think and act globally — need governance model and decision makers that align regions

•Standardization: Increasing global customer accounts and M&A demands require quick and efficient streamlining of different regional roles, responsibilities, and processes

Source: Deloitte Consulting LLP

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The Q2O process should be designed to support your organization’s strategic priorities in the marketplace.

Myths vs. realitiesBecause Q2O is often overlooked, there are many misconceptions about the nature and value of this cross functional process. Therefore, we will present the more common myths about Q2O and reveal the reality based on experience.

Myth #1: Quote-to-Order (Q2O) is a standard business process well defined by companies, and the process for quoting prices to customers and handling an order is a routine back office function.

Reality: The complexity of sales arrangements, the rapid growth of global operations, and the focus on customer responsiveness is forcing many executives to reexamine their quote-to-order processes.

Q2O can be the Trojan horse. Nobody ever starts out thinking there is a problem, but it often becomes the underlying foundation of many business issues. Are we being responsive enough to our customers? Are we positioned to scale for growth? Are our back office operations designed to meet global demands of our customers? These are the common issues that can be addressed through Q2O improvement.

Myth #2: Q2O is a back office function and broken processes do not have much impact on customers.

Reality: Q2O is a critical customer touch point that is becoming more prominent with new business models (e.g., managed services) and consumerism of IT (e.g., every decision maker is a consumer).

As we mentioned at the outset, Q2O is the forgotten link in customer experience. Companies rarely consider quoting, pricing, and order processing to be influential touch-points that influence brand perception, purchase decisions, and customer satisfaction. However, in the wake of creating new business models to sell more technology (e.g., software as a service [SaaS], leasing, capacity-on-demand, etc.), tech companies are dealing with not only change in sales techniques to capture growth areas, but also churn in having the appropriate infrastructure to support customers through more complicated transactions.

In a recent Q2O survey conducted by a high tech manufacturer, results indicated that perceptions and repurchase decisions are directly influenced by Q2O experiences. From an end customer perspective, 60% of respondents identified speed and turnaround time are typically the most important factors. However, during the configuration and quoting stages, direct customers and channel partners value flexibility more (e.g., vendors who work closely with them to develop scenarios and custom solutions). While during order management, customers and partners care most about order status visibility. Customers (with high consumer eCommerce expectations set by the likes of Amazon and UPS) are forcing tech companies to invest in self-serve tools and real-time tracking globally as part of their Q2O interactions.

Case exampleA voice-of-the-customer study was conducted for a storage equipment and service provider to assess whether Q2O process influenced the customer experience. Customers and partners were asked to rank the relative importance of five dimensions (automation, level of effort, visibility, flexibility, and speed) for each step of the quote-to-order process. Results showed that while product offering and price matter, customers and partners suggest that Q2O is an important factor to closing the sale. Some even reported having purchased from competitors due to dissatisfaction regarding Q2O experience, primarily based on Q2O speed. Specifically, customers expected a much quicker response time on simple deals (e.g., hardware, software, commodity transactions). Meanwhile, they do expect that complex deals require a longer response time.

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For channel partners and distributors, being “easy to do business with” goes a long way. One technology company asked their customers for feedback and received some honest opinions:

“Company A is the only vendor we have these issues with; everything else is clearer and much simpler. We’re not using them because of this; their invoicing and quoting causes us heartburn.”

“We continue to have problems. It affects our efficiency, we have different internal structure and workarounds just to manage Company B; it places a much higher burden — minimum 20% — on the team compared to other providers.”

Beyond just margins, partners are seeking self-service capabilities with minimal overhead. Keeping a low cost-to-serve model for partners can improve their experience and help them sell more of your products/services.

Myth #3: Q2O improvement initiatives don’t stack up against those with clear bottom line benefits.

Reality: An inefficient quote-to-order process can be a leaky pipe that prevents sales, operations and finance teams from being efficient and effective; improvements can drive lower cost-to-serve and tangible savings.

Sales and pre-sales people are sometimes our highest paid order management resources due to manual procedures. Instead of spending valuable time interacting with customers and closing deals, they can spend up to 30-50% of their time configuring solutions in cumbersome tools, filling out paperwork for special pricing, chasing down purchase order corrections, and investigating order delivery status. Having the efficient tools and processes for sales reps to respond to customers easily is not only helpful for a competitive advantage, but these intangibles can also become the basics for talent retention.

For those processing deals, Q2O improvement can be a cost lever especially under business expansion. When order volume is low, providing flexible arrangements with manual quote-to-order processes is not much of a concern. However, scaling up to meet higher deal volume with the same labor intensive work-around can be costly. At the same time, in competitive low-cost labor markets (e.g., Southeast Asia) where many high tech companies have built global bid desks or sales operations centers, loyalty is scarce and inefficient tools and processes are common reasons for attrition. Thus, the fixed cost structure for Q2O can easily be driven up from a headcount, training, and retention perspective. Treating Q2O as a cost avoidance opportunity can build a clear case-for-change and bring a different degree of interest from the management team.

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Near term: Fix the leaky pipe to drive deal velocityThe concept of a clean quote is when a deal goes through the Q2O process with minimal errors and intervention (e.g., human touches). Industry average is 15% error rate and class leading is 2%.1 Decreasing error rates can impact order velocity and improve customer turnaround times.

1 Cincom, “Best Practices in Guided Selling: Measuring Quoting Strategies’ Financial Impact,” 2009.

Three steps to improving Q2O over time

Near termFix the leaky pipe

Pursue quick win initiatives that fix targeted pain points and inefficiencies to improve customer responsiveness

Implement new processes for Q2O delivery and define system requirements for automation

Upgrade Q2O systems & tools and establish Q2O governance structure to lower cost-to-serve

Mid termOne size does not fit all

Long termEstablish global operating model

Companies often struggle with how much to invest in near-term vs. long-term improvements. Quick wins are needed to gain momentum and efficiencies realized in the near term can fund longer term initiatives. However, without fixing the underlying manual processes by upgrading systems and facilitating adoption of new processes through mid/long term initiatives, core issues may consistently remain. One of the main objectives when managing a Q2O improvement program is to balance and communicate both near and long term objectives and allocate resources accordingly.

What is your average end-to-end deal velocity? Where are the costly inefficiencies along your Q2O process?

Configure scenarios

(Time lag) (Time lag)

Pricing approvals

(Time lag)

Contract generation

(Time lag)

Finance approval

Quote to order: Deal velocityQuote initiated Quote delivered

Source: Deloitte Consulting LLP

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When striving for clean quotes and lower error rates, the most common misconception is that it is all about system automation. In reality it is more about process discipline (e.g., everyone doing the right thing at the right time). In fact, the level of system customization often holds an inverse relationship with the level of behavioral change that an organization is willing to impose. In other words, it’s easier to change the system than it is to change the people who perform the processes. In the short term, organizations often make the trade-offs by extending timelines and budgets to accommodate “as is” conditions. However, in the longer run, this dependence on system modifications proves costly (e.g., maintenance of highly customized systems through future upgrades) and institutionalizes traditional (and over time, outdated) processes and mindsets.

Instead, when executing near term initiatives, it is important not to get too caught up in documenting the as-is processes. Rather, understand the universal pain-points and the impact on the business to convince executives that fixing Q2O should be a priority. Also, differentiate amongst the improvement opportunities by determining which can add competitive differentiation and/or increase customer loyalty. Strike a balance between initiatives which are designed to relieve the manual labor and drive cost efficiencies in the near term, with those opportunities that can drive customer and partner satisfaction by improving their experience during the purchase cycle.

Case exampleIn a Q2O improvement effort, one high tech company took the following steps:•Found the leaks: conducted deep dive interviews

to understand current end-to-end Q2O processes — gained perspectives into global process inconsistencies

•Assessed the damage: Identified common pain-points that required manual work-around and obtained executive buy-in on case for change

•Prioritized the plugs: Established roadmap of improvements and prioritized high impact initiatives

•Primed the pipes: Trained participants on current processes — handoffs, responsibilities, interdependencies — to break silos of communication

•Fixed the leaks: Launched near term initiatives (e.g., automate manual steps, create new policies, etc.)

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Mid-term: One size does not fit allDeals are like customers, they shouldn’t all be treated the same. When we design our systems and processes to be one-size fits all, we end up over-serving some deals and underserving others. Taking the concept of segmentation

and applying it to deals leads to a differentiated treatment model. Simple deals should have simpler processes and complex deals require more attention and should take more time. This differentiation is important for organizations to scale for growth.

Deal segments: Simple Complex Very complex

Illustrative HardwareSoftwareMaintenance

+ Professional Services+ Leases, Loans, Trade-Ins+ Special Pricing

+ Managed Services+ Capacity Services

Q2O treatment: Low touch Prescribe touch High touch

Mostly automated Q2O process with high deal velocity

Streamlined Q2O processes with warranted reviews for quality and risk control

Custom Q2O processes due to complex pricing and financial arrangements

To get started on segmentation, it is important to have existing data on current deal profiles (e.g., who bought what, how?). Understanding the anticipated deal volume that falls into each segment helps to provide foresight into whether implementing a simplified “low touch” process will impact enough number of deals to drive measurable efficiencies. Next, test the segmentation definition with key Sales and Finance professionals. Ensure the definitions will resonate with customers and partners (e.g., they

expect quick turnaround for simple deals but are more forgiving on very complex deals), and that from a financial control perspective the company’s risk profile comfort level is maintained. Ultimately, the desired mix (i.e., % of deals) to maintain across the segments is flexible pending geography and maturity of the business. The differentiated service model allows for more attention where it is most warranted (e.g. complex deals) and enables a lower cost-to-serve on simple deals.

Deals

Low touch

Hightouch

Prescribed touch

Deal segmentation

Q2O treatment

Filter 1: WhoDirect vs. indirectNew vs. existing

Filter 2: WhatProduct familyProduct typeDeal size $

Filter 3: How

Order typePricing programsShip-to-destinations

Source: Deloitte Consulting LLP

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When defining the system changes required, use segments as a means to consider how current processes and systems can be streamlined, but not as an actual filter to build into a CRM system. Prioritize the areas where unnecessary steps can be reduced, and use system logic to differentiate the approval rules. CRM point solutions do not require system overhaul and can speed up the process for simple deals with less risk. For example, one tech infrastructure company examined their deal profiles and determined that ~60% of their deals were simple deals of less than $50k and accounted for ~10% of revenue. Deeming these lower risk deals, they created rules within their CRM system to filter out “simple” deals and routed those to an automatic finance approval instead of being held up in the process for 2–3 days. This allowed the finance department to free up analyst resources to focus on helping to structure the more complex deals.

Long term: Establish a sustainable global operating model One of the most challenging aspects of improving Q2O is the ability to establish global consistency. Regional uniqueness often leads to resistance to change. However, while the perception is that Q2O processes are very different across regions, the reality is that while people sell differently, fundamentally the process steps are similar. The difference is actually in people’s roles, responsibilities, job titles, and reporting lines. Thus, driving change in what people do in the Q2O process often requires three components: normalizing across the regions, recognizing where the true differences lay, and then convincing different stakeholders that change is needed.

The next roadblock is that in organizations that have traditionally been decentralized, global sales operations or finance decision makers are often not able to drive global consistency because regional business leads have more historical power. If you are in a similar situation, consider 3 tactics to establish a global governance model: 1. Name a single Executive owner for Q2O process at

same or higher level as Regional Sales.

2. Engage a committee of regional representatives to help redesign the process and to implement change, however, be clear on who makes what type of decisions to drive closure.

3. Set guiding principles on how to operate globally (e.g., decision making process, executive escalation path, design principles for serving global customers, pricing philosophy, etc.).

Common drivers of deal complexityIn reengineering Q2O processes, companies we’ve worked with have found the following requirements to cause complexity:•Configuration

– Upgrades on existing environments

– 3rd party products

•Pricing

– Multi-country orders

– Pricing of professional services

– Global quoting capabilities

•Finance and revenue recognition

– Unique sales arrangements (e.g., leases, loans, concessions, etc.)

– Definition of “simple” changes over time based on company risk profile

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For Q2O process changes to really stick, an organization redesign may be needed. To get started, inventory the reporting structure and role descriptions for current Q2O support staff across the regions. While it’s natural for resources to report into different functions along the process, consistency should be driven across regions to ensure Q2O roles report into the same function (e.g., Sales Operations, Finance, or Logistics). Next, standardize the Q2O roles and responsibilities across the regions. Consistency and common taxonomy can make it easier to implement changes, define system interactions, and conduct training. Lastly, examine the ratio of Q2O support staff to revenue and sales staff. Compare internally or externally with benchmarks to identify opportunities to adjust staffing levels.

Q2O is at the heart of a business’s ability to meet targets and close deals. The challenge that many high tech companies face over time is that the Sales teams get creative with the deal arrangements to make the sale, but the front end of the process introduces complexity which is paid for by the back end. When implementing Q2O improvements, it is often critical to communicate with the sales teams that standardization and global consistency is not meant to stifle sales creativity. But more importantly, that side manual processes are often not scalable. Q2O owners need to stay abreast of evolving business arrangements and standardize related Q2O processes globally when there is enough adoption.

Driving results: What are expected benefits? As a result of Q2O improvement initiatives, there are clear benefits in terms of revenue uplift, SG&A efficiency, and processing effectiveness. At the start of improvement efforts, consider establishing a baseline and then tracking results in a quarterly dashboard. Whether it is freeing up sales reps from back-office activities or enhancing capabilities to cross-sell through improved configuration tools, Q2O improvements can drive more revenue and higher sales productivity. Reducing manual labor and driving simple deals through more automated processes can result in reduced labor cost. And lastly, improved transparency and deal velocity can lead to improved customer and partner satisfaction.

The quote-to-order process is one of the fundamental pillars of any company’s sales operations. While some may believe that it consists merely of back office routines, there are many ways in which Q2O can be improved to deliver tangible business results. In the midst of the myths, the reality is that Q2O’s impact on customer experience is a hidden source of competitive advantage worth exploring.

Sample Q2O metrics•Leading indicators

– Deal velocity

– Deal mix

•Lagging indicators

– Cost-of-quote

– Cost-of-order

– Revenue uplift

– Customer/partner satisfaction

– Employee satisfaction

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ContactsSuzanne KounkelPrincipalDeloitte Consulting LLP +1 415 806 1603skounkel@deloitte.com

Nnamdi Lowrie Principal Deloitte Consulting LLP +1 310 251 0476 nlowrie@deloitte.com

Anne KwanSenior ManagerDeloitte Consulting LLP+1 415 783 6379annkwan@deloitte.com

Sandy OnoManagerDeloitte Consulting LLP+1 415 783 6215saono@deloitte.com

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