So just how important is an opportunity pipeline to a company’s well-being and ability to maintain and increase sales volumes?
When reviewing a company’s financial health, well-being and future sustainability one of the factors thrown into the analytical mix is a measure of the robustness of its opportunity pipeline. Operationally, most boards will have the marketing manager via the CEO, table a monthly report on the company’s business pipeline. However the detail and achievement assumptions are normally buried within a host of other statistics and are very rarely examined in any depth by the board. Indeed I’ve found even the cumulative holistic numbers and projections, if ever discussed, are only given a passing comment and not included in any regular monitoring process. If you doubt what I’ve just described take a look at any of your own board minutes and see if you can find any in-depth discussion or analytical review of pipeline economics and performance being recorded.
Over the years in my role as Chairman of various companies I’ve always insisted on pipeline statistics being an itemised agenda discussion. Not only within the marketing manager’s report but also picked up in a cumulative and high level sense when reviewing the business’ financial issues and future risk forecasts. In addition I’ve always made sure the Finance and Risk subcommittee include pipeline statistics and commentary when reporting to the main board.
So what should the opportunity report cover and how should it be presented to the board?
The statistics need to be ranked and group listed based on the possibility of actually achieving a sale. Groups can range from certain through to probable then possible then maybe with a final comment on future opportunities which have not as yet been quantified. Naturally, holistic assumptions should be made covering each individual grouping. Overlaying these categories should be a time element detailed in months together with a dollar value against each identified opportunity. Finally there needs to be a summary comment which outlines in a cumulative sense the dollar values and highlights the risk parameters and what action is being taken to address any problems. For presentation purposes I’ve always liked the Manhattan chart approach with the overlay being colour coded.
With such a document the board will have statistical information matched with probabilities and risk based on quantified assumptions which they can discuss, address and debate with some confidence.
But even with this information there’s still the most important element of all to address, “the conversion rate in percentage terms.” Put simply this is the number of opportunities converted into actual sales measured as a percentage against the overall total opportunities recorded and reported to the board. For example if a company achieves a 40% conversion rate from opportunity to a confirmed sale imagine the positive effect on bottom line profits if that conversion percentage were to be lifted to say 55%. Therefore, the conversion rate target becomes a critical enabler to increasing profits and requires regular monitoring.
In addition, the time from an opportunity being identified to successful conversion has a significant impact on business cash flows. Shorten this by a 20% factor and the company’s cash in hand being viewed as an asset or used to reduce bank facilities will significantly improve the company’s debt equity ratio, thus strengthening its balance sheet.
Therefore, if the board focuses management’s attention on improving the pipeline conversion percentage rates and improving the time to conversion parameters, the overall value of the pipeline should, subject to fluctuating market conditions, automatically increase. Thus, focused pipeline management will have a positive effect on revenue streams and company performance, underpinning the long term sustainability of the company and the overall health of the organisation.
I am unaware of any studies which have been undertaken nor any empirical evidence researched around pipeline monitoring and management but I can provide an example from a major company which I was involved with. The company’s business pipeline statistics and reporting were abysmal and as such didn’t rate discussion around the board table. As a result I insisted that a pipeline template was developed and over a three month period it was populated with facts and figures which when presented to the directors triggered and enabled meaningful discussion and debate around the board table. Over the next two years business pipeline monitoring was a regular agenda item at all board meetings and the directors readily accepted that the focus on this aspect of the business was a critical enabler to the strategic performance of the company. During the two year period the company’s revenue almost doubled and profits increased by millions of dollars with a huge improvement in cash flow reserves. The robust pipeline monitoring and management by both the board and executive was certainly a factor (but not the only factor) contributing to this success story.
In summary, business opportunity pipelines can be developed for any business regardless of their markets or organisational focus. It’s simply the matrix reporting mix that is changed. Even not for profit or socially orientated organisations can benefit from using this important board and management performance lever.
As an aside, I’ve recently noticed a trend where business pipeline monitoring is beginning to be included in corporate governance charters. This is indeed an encouraging sign and has certainly gained the attention of some investor groups.
...it has intrigued me that monitoring of the business opportunity pipeline is almost never in its own right an agenda item. Yet it’s one of the key performance enhancing levers that boards have at their disposal.