Case [5] Commercial Sales Transformation at Microsoft (HBS 519054)

1. How should Microsoft have measured (the organization’s or a salesperson’s) success?

How have Microsoft measured success? Firstly, We should understand the organization's
background as well. In the case we saw that Althoff and his team strengthened the message
that the three business units ATU, STU, and CSU were tied to an enterprise client. To operate
these three units both independently and interdependently, as well as to filter out any
unnecessary conflicts across the business units. That’s why Althoff put the three in equal
positions but clearly distinguished each unit’s accountability. Also, we could know these
functions which is the ATU supervised the accounts, the STU focused on new business and
acquisitions, and the CSU managed customer success to grow cloud consumption.

Normally, Microsoft’s salesman had been driven by field sales co-selling with partners, with
salespeople operating in the field, face to face with a client. A field salesman typically handled
the accounts as one to one management which was required for the very top enterprise
customer, and the account coverage per salesperson would stretch with a decrease in potential
account revenue. However, Althoff believed that the company could sufficiently increase
coverage by nurturing the inside sales with digital infrastructure.

Success Measurement at Microsoft

Besides, Microsoft had measured success in terms of total contract revenue. This measure was
not only limited to individual employees, but was also consistent across teams, divisions, and
business units. And individual sales quotas were set in total contract revenue. For on premises
licensed software, total contract revenue was very straightforward which equals to licensed
software price X number of seats X duration. On the other hand, for cloud systems and
infrastructure, total contract revenue was revenue that occurred with the initial
implementation and any contractual minimum cloud consumption. This did not fully capture
the total cash flow. As consumption typically went over the minimum and continued the whole
future. Along with total contract revenue, separate measurements, such as total cloud revenue
and cloud consumption revenue were tracked. Total cloud revenue simply measured any
revenue resulting from the implementation of the cloud system per period. Cloud consumption
revenue just measured revenue occurring from usage in a particular time.

However, Microsoft compensated salespeople based on a fixed salary, a bonus based on quota,
a performance review bonus, and stock rewards. In general, Microsoft’s sales earned more than
half of their total compensation through performance based variable pay.

Measurement for Different Functions

I think the criteria for measurement should vary across different functions. Because salesmen at
Microsoft typically went through a simple linear process. For instance, Marketing and the
account team (ATU & STU) generated the leads, the account team (STU) engaged with the leads
and partners to convert them to customers, the account team and the licensing team closed
the deal with the support of partners and shipment of products or system implementation took
place. Once the contract was signed and the shipment or the initial implementation was
complete, the sales process was considered closed, and the partners engaged with the
customer largely independently to implement the solution that the customer had purchased. It
is a quite simple flow. This indicates within the flow each function has their job to do.
Therefore, the criteria for measurement should vary across functions by the performance they
achieved.

2. Would you change anything in the five pillars within the proposed sales transformation?
Which pillar do you think is the most important? Which is the most difficult to implement?

In reshaping the organizational structure, the five core pillars of sales transformation were
created to guide the commercial sales transformation and ensure effectively streamlined sales
with partners and customers. Microsoft believed implementing the new sales strategy would
allow them to align the right resources for the right customer at the right time. The most
essential part for Microsoft here might seem to be identifying the right target to expand the
potential of its partners and customers. However, the critical mechanism that could provide
Microsoft a competitive advantage over the other cloud solution providers is how they can help
customers grow business opportunities and achieve higher success.

Which pillar do you think is the most important?

As part of its sales transformation strategy, Microsoft established Specialist Team Units (STUs)
to support the account teams. These units play a crucial role in working with partners and
customers throughout the sales process, leveraging cloud and technical support to deliver
competitive solutions that contribute to Microsoft's competency over its competitors. The
STUs are dedicated to creating specialist and technical sellers, who are considered the most
invaluable assets to Microsoft. They help in driving a solid and steady digital sales force,
enabling Microsoft to develop better products in the future.

Which is the most difficult to implement?

In order to achieve its sales transformation objective, Microsoft requires support from partners
in the customer engagement process. Microsoft attempted to restructure its partner system on
its platform to enable seamless sales, support, and mutual benefits. Even so, the VP of One
Commercial Partner commented that "most of our partners were still doing very traditional
business with us", indicating that not all partners share the same goals as Microsoft. It is
challenging for Microsoft to control external factors beyond the organization. Therefore, one of
Microsoft's biggest challenges in sales transformation is to convince partners to rely more on
cloud-based offers by providing more information in training and addressing the issue of data
privacy and security on the cloud services. Although it may take time, partners will eventually
undergo digital transformation through the whole network's influence.

What can still be a gap for improvement in the five pillars of sales transformation?

In line with the collaborative efforts with partners, the successful execution of Microsoft's new
sales transformation needs a well-defined project guideline and timeline. This is crucial for
managers and all teams to seamlessly adjust to their evolving roles within the organization.

To ensure the effective implementation of the sales transformation and foster collaboration
with partners, it is imperative to establish a clear project timeline and comprehensive
guidelines. For example, Microsoft can strategically balance the collaboration between field and
inside sales teams, gradually adopting changes until the entire sales strategy undergoes a
complete transformation.

Failure to execute this transition smoothly may result in a disjointed or confusing digital sales
journey, leading to dissatisfaction among both employees and customers and a potential loss of
business. Therefore, Microsoft must dedicate additional effort to planning throughout the
implementation process.