Lead-to-cash (L2C)—the conversion of customer interest into income—is a perennial and recurring issue for many businesses. And as a problem often seen as being without an owner, it can be a hard one to solve. At a recent discussion on the topic, companies told us about four common challenges experienced in their L2C processes and shared potential solutions to manage complexity, automation, and the importance of people in building relationships.
The problem with elephants
L2C (including quote-to-cash or order-to-cash) issues are as old as business itself, but the noise around L2C is growing louder due to increasing business growth and complexity. Arching across operations, sales, marketing, leadership, strategy, legal, investment, business model, skills, and finance, among others, L2C is also a classic “elephant problem”: finance sees a controls problem, sales sees a speed problem, and IT sees a complexity problem. Nobody sees the pain points as symptoms of an end-to-end issue or approaches the search for solutions through that lens.
And even if such heroes presented themselves, they would quickly face a serious barrier to change: there is no natural L2C process owner in most companies. Finance, sales operations, or IT might be in the cash optimization driver’s seat in different organizations. Because of this arbitrary element, the focus is often uneven and variable, with the “biographic” tendency around L2C leading to a lack of organizational alignment.
Where does this lead?
The examples of L2C glitches we heard will feel familiar to those with experience in trying to manage or improve cash optimization processes.
- Data is missing or incomplete data flows. Recurring manual efforts, lack of transparency, and lack of responsiveness to customers when custom offerings do not enter order details to downstream systems in an automated way.
- Every deal is bespoke or misalignment between customer needs and delivery models. When a one-size-fits-all approach to customers reduces the ability to provide the bespoke, white-glove process where it really matters.
- Margin leakage during delivery, product arrived broken or not at all, or the customer is not happy. When a mismatch between as-sold and as-delivered contracts can lead to leakage downstream.
- We can’t find the answer quickly, even if we try, or lack of visibility into financial and delivery performance. When there is neither the data required for process transparency nor the connectivity of cross-functional teams necessary to provide transparency to customers in a timely way.
Start with the simple segments
We have seen that the hardest approach is to seek to reduce complexity and harmonize all systems with a single solution. This is expensive, hard to align, time-consuming to achieve, and fraught with veto rights. In fact, many organizations that have sought to follow this path have since given up.
A more successful approach is to segment complexity. We see a large segment of relatively simple, standardizable, repeatable deals within a company’s overall sales volume. Typically, these will be nonstrategic customers and can be served through standard contractual structures. These might include default terms for payment, intellectual property (IP), indemnity, perhaps with one to three predefined fallbacks, downstream invoicing, and collections processes.
Companies that have succeeded in this area have segmented out this simplicity and worked on improving processes there first. Frequently and encouragingly, if 50 percent of sales volume may be considered standardizable in the first year, this may rise to 80 to 90 percent one or two years into the transformation. In other words, change in this area is a sizable job to begin with, but successful standardization breeds its own wisdom and know-how, which helps organizations tackle most of the remainder.
Crucially, these companies recognize and respect that there will always be a portion of complexity that does not warrant being standardized and will be subject to different processes and treatments.
What and when to automate
Determining what to automate and in what order is another crucial thing to get right on the journey to better L2C. We observe a natural tendency to pull all cases into the requirements and be inclusive in the automation agenda. Again, this is expensive and time-consuming and gives corner cases the veto right over the whole simplification effort.
Instead, choosing to streamline and then automate what is more straightforward immediately removes volume from the system, freeing bandwidth for teams to grasp the next wave of automation opportunities.
People are the key
The single largest challenge in this journey to better L2C is change management. This is particularly true with frontline sales teams for whom contractual and process flexibility is considered part of customer centricity.
The most critical element is to be clear about the primary metric of success: efficiency, effectiveness, or experience. Delegates observed that efficiency tends not to work as the primary metric at the outset. Cost to serve will reduce as the end-to-end process is streamlined, but effectiveness and experience (time to value and transparency for the customer) are the main outputs at the beginning.
Here, we again find that automating the simplest relationships first is helpful because it means the average contract size or customer size can be managed. This reduces the risk of disrupting the relationship with strategic customers and ensures that the effectiveness and experience upsides for sales are felt quicker.
In conclusion, companies succeed in improving L2C when they respect the complexity, streamline the simplicity, performance-manage the impact on effectiveness, experience, and efficiency, as well as act purposefully on change management with frontline sales.