How You Slice It, Smarter Segmentation

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BEST PRACTICE

Medical-equipment supplier Hill-Rom accelerated its growth by segmenting customers in a new way and tackling their most pressing problems.

How You Slice It

Smarter Segmentation for Your Sales Force
by Ernest Waaser, Marshall Dahneke, Michael Pekkarinen, and Michael Weissel

Reprint R0403H

Medical-equipment supplier Hill-Rom accelerated its growth bysegmenting customers in a new way and tackling their most pressing problems.

BEST PRACTICE

How You Slice It

Smarter Segmentation for Your Sales Force
by Ernest Waaser, Marshall Dahneke, Michael Pekkarinen, and Michael Weissel

When executives focus anew on top-line growth, as so many are doing this season, their mental checklist nearly always includes questions about the sales force. Howcan its performance improve? How can it support the growth of new offerings? Many executives make the mistake of thinking the problem comes down to incentives: Get the carrots correctly aligned, and the sales force will redouble its efforts. Some assume, even more simplistically, that if you want more sales, you need more salespeople. The experience of health-care equipment manufacturer andservice provider Hill-Rom illustrates, on the contrary, that meaningful improvements in sales come from doing three things: segmenting customers more thoughtfully, designing an organization that can serve the different segments more efficiently, and staffing that organization at the optimal level. We’ll discuss those approaches in greater depth, but first, some background. Three years ago, Hill-Rom wasin a position common among mature businesses: The com-

pany was strong, but it needed to be stronger. Headquartered in Batesville, Indiana, the business had been successful for more than 70 years. It held a strong competitive position in its core product line of patients’ beds and specialty mattresses for acute care, long-term care, and home care environments. The company also had strongcomplementary product lines of stretchers, furniture, architectural equipment, and nurse-to-patient communication products. It had an extensive customer base and a respected sales force that was recognized for its deep product knowledge and strong customer relationships. Hill-Rom had solid profit margins and had contributed significantly to the stock value of the parent company, Hillenbrand Industries.But when Ernest Waaser, lead author of this article, took over as chief executive in early 2001, his initial assessment of the company uncovered some danger signs. Revenue growth had been slowing, and the company’s traditional tactics, such as product line extensions and acquisitions, were not enough to achieve

harvard business review • march 2004

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Smarter Segmentation for YourSales Force • B EST P RACTICE

Ernest Waaser is the president and chief executive of Hill-Rom, the health care unit of Hillenbrand Industries, based in Batesville, Indiana. Marshall Dahneke is the vice president of corporate strategy at Hill-Rom. Michael Pekkarinen is a Boston-based director of Mercer Human Resource Consulting. Michael Weissel is a Bostonbased director of Mercer ManagementConsulting. Waaser and Dahneke can be reached at feedback@hill-rom.com. Pekkarinen and Weissel can be reached at info@mercermc.com.

desired levels of future growth. Competition was increasing, too. Some of Hill-Rom’s customers were beginning to experience severe pressure to reduce costs and were considering lower-end, lower-priced alternatives. Hill-Rom needed to demonstrate to its customers how itspremium products and services could yield a higher return on their investments through lower labor costs, improved caregiver safety, and better patient outcomes. The senior management team concluded that future growth depended on more product innovation and differentiation, as well as more cross-selling and acquisitions. To support product innovation, Hill-Rom decided to nearly double its...