Blogging about

The Bottom Line

Evan Davis gets to the heart of the big finance stories at The Bottom Line.

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way."

The most well-known passage of Charles Dickens’s novel, A Tale of Two Cities, seems an appropriate starting point to discuss private equity, one of the topics of the latest BBC/Open University The Bottom Line broadcast. Belief and incredulity appear to characterise our present epoch of financial booms and crashes, during which private equity firms are painted as the pantomime villain in capitalism’s triumph and fall: asset strippers in name and deed.

The relationship of Dickens’s tale of London and Paris, at the time of the French Revolution, to the financial centre of the City of London seems metaphorical and real. Joseph Addison had described London as an “Emporium for the whole earth” a century earlier, and in the emporium that is the global financial entrepôt of today, private equity firms are as much a part of its landscape as the trader of the 17th century. In the late 20th century, the leitmotif of the City of the furled umbrella and the bowler hat gave way to the yuppie and the mobile phone; the gentleman giving way to the player. For some commentators, these changes represented a revolution whose genesis rested on private equity firms and their ilk.

Businessmen shaking hands.
photo © copyright Jupiterimages Corporation

Private equity firms operate on the basis of buying and selling a portfolio of companies to extract returns of 20 per cent on their investment over a three-to-seven-year period. They institute cost cutting and disposal of parts of companies in order to sweat the assets they have invested in. For defenders of private equity firms, they create long-term value. For critics, they are the manifestation of the UK-based asset strippers of the 1970s; Jim Slater, John Bentley and ‘Tiny’ Rowland amongst others, whose activities were called the “unpleasant and unacceptable face of capitalism” by the then Prime Minister, Edward Heath. The language of private equity activities are, in this view: a climate of fear; downsizing; the casualisation of work and so on. This litany is universal to these firms, whether expressed in the English or any other linguistic form. For the famous economist Joseph Schumpeter, entrepreneurship represents the revolutionising of the economic structure which enables new activities to be born, phoenix-like, from the ashes through the process of “creative destruction”.

It is the important question of language that formed the second topic of The Bottom Line discussion. English is claimed to be the universal language of business, with its own cross–national dialects, so that knowledge of other languages is deemed not to be as important as it once was. But language is like football, the rules of the game may be pretty much the same but the variants are as numerous as the array of cities in the world. It is a linguistic truism to say that language affects the way in which one thinks. Knowledge of local customs may be useful upon introduction to a client, but knowledge of the rudiments of the local language is an important part of business engagement and sustainability. For example, in China, saying yes to a question does not signal agreement but rather that the speaker has been heard. These are important considerations for companies that engage in international transactions. It can be argued that globalisation will only be completed if the law of one price operates. That is, all prices in the world converge with the only differences being accounted for by transport and administration costs. Similarly, if English became the first language of everyone in the world it would become truly global.

Capitalism, as Schumpeter and others remind us, is a revolutionary system in which “all that is solid melts into air, all that is holy is profaned…” Private equity is part of that system and provides a vehicle for “revolutionising the conditions of production.” A single global language would be part of that revolution, and if that is not generally understood then change does need to be made. Blaming private equity firms and hedge funds for the financial crisis is a bit like Canute blaming the Moon for his failure to control the tides. There are compensations with more than two cities and more than one language in the world which makes us all richer, whether materially or culturally. The globalists, in whatever guise, make us all poorer as heterogeneity is sacrificed for homogeneity.

Find out more

Sovereign wealth to the rescue

Faith in fakes? Travels in hyper-mobility

OU courses

Financial strategy

Making a difference

Capacities for managing development

Beginners’ Chinese

About the author

Leslie Budd is Reader in social enterprise at The Open University Business School. He is an economist and has written extensively on the relationship between regional and urban economics, and international financial markets.

Subscribe to Leslie Budd's posts

 

Blogging about

The Bottom Line

Evan Davis gets to the heart of the big finance stories at The Bottom Line.

In this week’s The Bottom Line, there was a lot of talk about the demise of the traditional salesperson and how they’ve become obsolete in our online, low-cost world. And there’s a lot of truth in that. In my “civilian” life as a consumer, I rarely deal with salespeople these days. In the past week, I’ve bought a holiday, books, insurance, baby clothes and a DVD, all without even speaking to a living soul. Like many others I find that convenient, cheap and, whilst I might miss some human contact, I don’t miss the traffic jams or the surly young man who doesn’t even know how to smile or make eye-contact when I give him my money.

But in my working life, as a management researcher looking at how firms create and implement strategies, it’s a different story. In particular, B2B (that is, business-to-business) selling is very different from B2C (business-to-consumer) selling. That’s not to say the traditional salesperson has been left untouched by the tsunami of web-based innovation. The firms I study are keen, where they can, to reduce the numbers of costly and, let’s be honest, often hard to manage road-warriors who burn expenses and are often inflexible. Because of these drawbacks, they’ve shed their traditional “order-takers” and replaced them with call-centres and on-line channels, just like in the consumer world.

What’s left, in many B2B sales operations, is a small, better paid and more important sales force. In particular, those salespeople who survived the shake-out now tend to have different titles (almost no-one is called a ‘sales rep’ these days) and have different roles. There are three of these new, super-salesperson roles worth mentioning here.

The first is the technical specialist. Many products that companies or organisations buy are very technically complex. IT, pharmaceuticals and capital equipment are obvious examples, but lots of outsourced services, like maintaining the buildings and recruitment, are more complex than you might think. In these cases, the old-fashioned salesperson has never had much of a role.

Technical specialists have the job of selling these complex products and services and to do it well they need to be well-educated, well trained and at least as much as a consultant as they are a sales rep. These people aren’t under threat of replacement by a website or a call centre and in fact most companies have trouble getting enough good technical specialists. To quote one executive I met “Getting geeks is easy; getting reps is easy; getting geeks who can sell is very hard.”

The second species of salesperson for the modern world is the key account manager or KAM. As is the way of things, companies sometimes re-label ordinary reps with this grand title in order to make them feel more important, but a real KAM is a very different beast. Their task is to make sure large, profitable accounts stay that way in the long run. They spend little of their time actually selling and most of it as a sort of project manager or, as one KAM told me, an orchestra conductor.

In key account selling, contact between buyer and seller is complicated. Our techies talk to their techies, our lawyers speak to their lawyers, our accountants speak to theirs and so on. The job of the KAM is to make sure this happens, that nothing falls through the cracks and that the customer remains happy and a source not just of profit but of market knowledge too. This takes a very different skill set from old-fashioned selling and many more reps aspire to KAM than can actually do it. Like technical specialists, good KAMs are worth their weight in gold.

The final species of super-evolved salesperson is less common and found in markets that are technical and where the buying process is complex. In this sort of market, certain customers become experts and influence the rest of the market. In pharmaceuticals, for example, these might be professors in medical schools. In corporate IT, the IT directors of big multinationals fulfil this role. The industry jargon for these influencers is Key Opinion Leaders (KOLs) and the über-reps that work with them are typically called KOL managers.

Their job begins like a technical specialist, persuading the KOL that their product is best through a very detailed scientific sell. But the KOL manager isn’t measured by his sales figures. Their goal is influence and success is measured by getting the KOL to publish, speak and otherwise endorse the product so that the more mainstream customers will follow. Like the other two kinds of advanced salespeople, good KOL managers are priceless. This is especially true since KOL management is often a team task and a good KOL manager has to combine the technical skills of a specialist and the management skills of a KAM.

So, as with many things in management, the picture is more complex than the headline. The traditional salesperson is fast becoming obsolete, but there’s more to it than that. The best salespeople have become specialists, KAMs and KOL managers. In doing so, they’ve become more important, better paid and much more employable.

Further reading

An introduction to business studies

Myth, reality and requirements in pharmaceutical Key Account Management
by Brian D Smith
in Journal of Medical Marketing 2009

An Exploratory Study of Key Opinion Leadership Management Trends amongst European Pharmaceutical Companies
by Brian D Smith
in Journal of Medical Marketing 2009

About the author

Dr Brian D Smith is a Visiting Research Fellow in The Open University’s Marketing and Strategy Research Unit. He is the author of over 100 books and articles and runs PragMedic, a specialist strategy consultancy.

Subscribe to Brian Smith's posts

 

Blogging about

Money Programme

Get the facts behind the big business and finance stories from around the world – and down your street, in The Money Programme.

You’d think that a service that cuts estate agents out of the house-buying process would be hailed as the best thing since sliced bread. Such services already exist, and can save you thousands of pounds, yet for some reason they have yet to make any significant impact.

The Money Programme 'Beat the Estate Agent' explores the growing range of alternatives to the traditional high street approach to buying and selling houses. These include a number of internet-based services, as well as leading supermarket chains, all keen to grab a slice of the market.

"Estate agents have seen their fees skyrocket tenfold in the last 25 years"

Estate agents have seen their fees skyrocket tenfold in the last 25 years, without doing a jot more work. In addition, many customers complain of dubious practices and poor quality service. Against this backdrop, it’s not surprising that some see this market as long overdue for change.

The internet has transformed the way we buy and sell most things. It has proved exceptionally successful at disintermediation, which is the ability to cut out the middlemen, especially where they’re seen as adding little or no value to the supply chain. So could it damage estate agents’ stranglehold on the property market?

The internet offers alternative business models which are attractive to house sellers in a number of ways, and a growing band of sellers are eager to switch. But this doesn't appear to be enough in itself to change this marketplace.

Very few innovations that rely solely on technology are successful. Technological innovation must be matched by market need, and so far house buyers seem reluctant to embrace this change. This acts as a brake on private sellers who would rather have a sale with a hefty estate agent’s fee, than no sale at all.

It’s not clear why buyers are slow to take up these new opportunities. Whilst some 70% of people now search for their next home online, many people still seem to be uncomfortable with the notion of engaging in direct negotiation with vendors.

Understandably, estate agents are not keen to see any growth in private sales. They suggest that sellers will lose out by not realising the full value of their property and not having an agent to manage viewings and screen-out undesirables. As Peter Bolton-King, chief executive of the National Association of Estate Agents, puts it “if you are selling it privately, any Tom, Dick and Harry can just come round”.

Much of the competitive advantage that estate agents have comes from controlling the flow of information at the various stages of the house buying process. However, this is gradually being eroded. For example, the Land Registry decided a while ago that the prices paid for homes must be made public. So both sellers and buyers can find out exactly how much was paid for other houses in their neighbourhood.

The availability of this information helps private sellers place an accurate value on their properties, effectively deskilling the estate agent’s role. Hopefully, as more information enters the public domain the house buying market will be exposed to more transparency, which (in theory) should be good for customers.

"The role of the estate agent could be on the cusp of a radical transition"

Everything suggests that the role of the estate agent could be on the cusp of a radical transition. But it’s not yet clear what will be the tipping point which will push the old business model aside. Until then I guess it’s business as usual.

Further reading

• Beat The Estate Agent – The Money Programme investigates some surprising alternatives to estate agents
• Network effects – new technology doesn't succeed or fail on its own merits
• Money and Management Forum – would you buy a house online? Or trust Asda to sell your house?
• War breaks out on the home front as old and new estate agents clash
• ThisIsHousePrices.co.uk
• The Rise of the Network Society: The Information Age by Manuel Castells, published by Blackwell Publishers

About the author

Matthew Hinton is Senior Lecturer in Information Management at the OU Business School. His research addresses the impact of e-business on operations and information technology evaluation, especially the performance management of e-commerce applications.

Subscribe to Matt Hinton's posts