The news that energy companies have decided to drop direct door to door selling in the face of prosecution is the latest example of poor thought out performance metrics and managers unsuccessfully trying to shift risks out of their business.
Electricity and gas distributors Energy Australia and AGL embarked on a door-to-door sales campaign to gain more customers. Like most modern corporations, they don’t do this stuff themselves and engaged outsourcing companies who in turn took on commission salespeople to do the ground level selling selling.
It didn’t work well and in face of complaints, both companies had to back away from their campaigns after suffering legal and reputational damage.
The sad thing this has happened before, at the time of telecoms deregulation in the 1990s telcos did the same thing to grow their market share. Door to door sales teams fanned out across the suburbs to sign households up to telephone plans.
In one example, a company hired dozens of backpackers, bussed them to outlying suburbs and sent them out on the streets to sign up as many households as possible.
Initially the campaigns were a success with providers reporting increased signups, greater market share, fat executive bonuses and happy commission earning salespeople.
Then the complaints began.
Customers discovered they’d been lied to, or in some cases falsely signed up, as hungry salespeople did everything they could to get a commission.
At first the telcos thought they could throw the problem over the fence so they blamed the contractors. Eventually the damage became so great the telcos had to back down on their door to door selling as problems multiplied and consumer protection agencies expressed their irritation.
At the heart of the problems with this type of door to door selling is the mismatch of incentives – for managers, contractors and the teams going door to door in the suburbs.
Door to Door Blues
At the coalface are the salesteams trudging around suburbs. In the 1990s telco boom they were largely made up of backpackers whose interests were to sign up as many customers as possible in order to fund the next stage of their travels.
Often, the telco or its contractor would only discover a sign up was the family dog or toddler long after the traveller was sunning themselves at Koh Phi Phi.
Using Indian students as the energy contractors were doing largely fixed some of the worst excesses of the 1990s but it didn’t address all of the problems
Management misalignment
Driving the rush for sign ups are usually poorly designed management Key Perfomance Indicators – a dumb set of executive benchmarks rewards poor behaviour and creates unforeseen risks. Particularly when those KPIs are focused on short term metrics.
Very quickly the risks in the short term focus become apparent and managers back off from these programs.
In this case it appears Energy Australia’s managers heeded the early warnings and backed off before the problem became too great, unlike the telcos who let the sales teams run rampant before reigning them.
What’s saddening about Energy Australia’s and AGL’s problems is they were totally forseeable and those who warned of the risks in a door-to-door customers acquisition strategy – and there were almost certainly some in these organisations – were overuled by enthusiastic executives aiming to bust their sales and market share metrics.
Sometimes we are condemned to repeat history repeatedly in business.
If one loses control over supply chain or sales channels the result is horse meat beef burgers.
Yes, but the bonuses are so shiny!
Paul – is it that the outsource model itself is broken, or is it that we just need new incentive models?
Good question. Personally I don’t think there’s anything wrong with outsourcing, it’s just that many organisations don’t do it well.
The worst culprits are those who see it as an easy way to cut costs or to relieve management of their responsibilities, the latter reason is what I suggest caught out Telstra and Energy Australia.