Performance indicators to watch

Recently, the sales manager of a leading paint product manufacturer that distributed its product through wholesalers to retail outlets, major retailers (such as do-it-yourself chain stores and supermarkets), and directly to building contractors, was given the mission to make a major inroad in the market segment of professional builders and substantially increase the firm's market share in this segment.

The sales manager developed a program for the sales force that included contests and bonuses for salespeople who could reach the highest sales volumes in this market segment over a one-year period. After one year, management proudly claimed that the firm's market share objective had been reached and even surpassed. Given the success of this incentive program, the sales manager decided to keep it running for another year. Quite unexpectedly, the sales to building contractors showed a sharp decrease the following year.

The sales manager decided to investigate and analyze the situation to find out why this sharp sales decline had happened. Salespeople, clients who had ordered that year, as well as those that had not ordered, were questioned. It quickly became obvious that the market share increase gained the previous year had been the result of hard-sell tactics from a sales force that had been motivated to reach the highest sales volume possible. To that effect, salespeople had overstated the quality of the products and promised delivery times that could not possibly be met by the production department.

What knowledge should sales managers have acquired in order to properly carry their missions? What qualities should they possess? These are questions that are addressed in Part I of this book. As underlined in Chapter 1, a sales force must be managed at two levels. A sales manager must attempt to influence market and customer behaviors through the sales force and salespeople. Three chapters of Part I (Chapters 2, 4, and 5) are devoted to a description and analysis of the behaviors of the three main actors of the dynamic sales management process: buyers, salespeople, and sales managers. Chapters 3 and 5 assess the roles of these actors in building and maintaining strong and lasting relationships. The rationale for this structure is provided in Figure I.1.

Chapter 2 describes the key actors of the sales management process that salespeople attempt to “influence,” that is at a basic level, customers and prospects whose behaviors must be understood, predicted, and influenced, and at an aggregate level, the whole sales territory.

Chapter 3 analyzes the role salespeople play in developing relationships with clients and in managing their own sales territories. In order to establish business relationships between suppliers (through their sales representatives) and customers, a number of interactions must take place. Salespeople as well as sales managers cannot properly accomplish their missions unless they understand their customers' purchase and selling behaviors and grasp the influence and persuasion mechanisms that are activated during the selling and negotiation processes.

A frequent problem for large sales forces

The sales manager of an international firm selling office supply equipment followed a policy of promoting the best salespeople to managerial levels. The firm's human resource manager explained that there were several reasons for this policy. First, the prospect of being promoted was a powerful motivational device. Second, the newly promoted managers enjoyed high credibility with their salespeople because they were known to be among the best in the sales force. Third, as they were salespeople themselves, they had a thorough understanding of the job and the people they supervised.

However, when the sales manager formally assessed the performance of those people who had been promoted, it became clear that not all of them were being successful. In a significant number of cases, it became clear that the firm had exchanged one of its best salespeople for a poor regional sales manager!

Several causes could be attributed to this problem. First, the qualities that are essential for being a successful salesperson are not the same as those required for an effective leader and manager. There was no a priori reason why the promoted salesperson should have those required qualities. Second, promoted staff have only partial and incomplete knowledge to carry out their new duties effectively. Although they typically knew their own territory and had some knowledge of the other members of the sales force, they generally had insufficient information about the sales force, the firm, and its markets.

Case study 1: myopic sales force management at an Industrial Mechanics Corporation

A few years ago, the Industrial Mechanics Corporation (IMC), a large firm selling and leasing mechanical equipment to building contractors for use on construction sites, implemented a new compensation plan for its sales force. The objective was to provide its salespeople with a more motivating plan than the current one which was based on salary plus commission on sales volumes. The principles of the new plan were: (1) to reduce the proportion of fixed salary in the total remuneration, (2) to slightly reduce the commission rates on sales, and (3) to compensate for the decreased remuneration level by adding an individual bonus. The salespeople could earn a substantial bonus by meeting an individual annual sales target. Sales quotas were set in such a way as to be higher than the sales volumes realized the previous year in a given territory, but at levels that were deemed both realistic and achievable.

Several months after its implementation, the new plan was considered a success. By the end of the first year, most salespeople had met or exceeded their targets. The average remuneration paid to sales staff had slightly increased. At the same time, company sales and profits had increased substantially – management attributed these positive outcomes to the new compensation structure.

Soon after, however, the situation in the sales department started deteriorating. The morale of the sales force declined, several top salespeople resigned and joined competing firms.

Effect of personal objectives and preferences on salespeople's behavior

Salespeople's reactions are likely to depend on their personal characteristics and preferences. This is the lesson that the management of a branch of an international corporation has learned the hard way (Darmon 1974). The International Agricultural Machine Corporation (IAM), an important producer of agricultural equipment, decided to increase its sales force motivation to improve its sales and profits. For that purpose, sales management increased the remuneration rates, partly linked to sales volume and partly to gross margins. Before it was implemented on a full scale basis, the reaction to new compensation plan had been tested by asking the opinions of a selected group of salespeople. They had been selected according to their co-operative attitudes, as perceived by their respective supervisors. Most of them were senior. As the test group recorded a unanimous favorable reaction, the new compensation plan was duly extended to the whole sales force.

The outcome of this new motivation program after a six-month period was extremely disappointing. The total sales volume was about the same as before. The compensation paid to the salespeople had substantially increased, and consequently, the total company profits had dropped.

Because of these unexpected results, the marketing manager asked an external expert to find out why the new compensation plan had failed and to propose a new solution which would effectively motivate the sales force.

The expert analyzed each individual's reactions to the new compensation plan. The results were illuminating.

In Part I of this book, we saw that controlling a sales force consists of establishing a set of procedures for supervising, coaching, motivating, evaluating, and compensating salespeople. In other words, sales force control involves all the means that induce salespeople to accomplish the firm's mission in its markets (Anderson and Oliver 1987). As also underlined, from a managerial perspective, the problem of the dynamic management of a sales force can be stated as follows: what are the indicators that sales managers should observe and what are the actions they should take as a result of such observations to induce salespeople to work towards the firm's objectives as closely as possible?

In fact, a process is exerted through all managerial actions taken in the framework of what has been called the sales manager's command center. Training, motivating, coaching, supporting, and compensating salespeople can be conceived as being parts of the sales force management and control tools. Managers have a number of means at their disposal to exert this control. They exert some control on sales effort levels, the sales force organization processes, and all kinds of programs for setting objectives, motivation and increasing competence levels. Part I was essentially descriptive. Part II is more normative. It is comprised of five chapters (Figure II.1).

The first four chapters are devoted to the various programs that constitute sales management's control levers: the programs designed for controlling the level and deployment of the selling efforts in the market (Chapter 7); the programs aimed at influencing salespeople's behaviors, first, under a more or less centralized control approach by providing salespeople with specific objectives (Chapter 8); second, under more decentralized or balanced approaches, by providing salespeople with directional objective and incentive programs (Chapter 9); and those programs that intend to maintain and increase salespeople's competencies (Chapter 10).

The vision of a Dynamic Sales Force Management Process that has been developed throughout this book is a general vision. It recognizes that any sales force management/control system is typically made up of several elements or sub-systems. The two major sub-systems that constitute a manager's command center are a set of control levers (or programs) and a dashboard. Control levers are constantly activated and adjusted as sales managers, the leaders in charge of the process, watch on their dashboard whether they are on track toward meeting their short- and long-term objectives. All the control center elements should be designed so as to help management achieve its multiple selling objectives, and in such a way as to directly or indirectly adjust salespeople's decision spaces, and consequently, their levels of autonomy and initiative.

Every control element may be characterized along one fundamental dimension, that is, its ability to provide a centralized versus decentralized control. The selection by management of a position on the centralized-decentralized continuum generally depends on the firm's specific sales force selling and control objectives, and on the relative availability and costs of obtaining and using the relevant information.

The proposed vision of a dynamic sales force management process has a number of implications for the practice of sales management and for sales research.

Some managerial perspectives

First, this book has proposed a vision of sales management that is still under-used in practice. This is, however, an integrative vision.

A sales force motivation program at American Express

American Express' management considers that team work contributes substantially to the firm's success. The proximity of a sales team with customers, the continuous concern for quality, the constant search for improvements, as well as the importance of every salesperson's commitment are the bases that this firm uses to motivate the sales force. When they succeed in opening a new account, a salesperson gets a bonus on top of commission that is a percentage of the amounts that the new customer deposits during the first six years. In addition, every year, the highest performing salespeople are offered a luxury holiday. In order to fall into this category, the salespersons must have been singled out for some action in which they demonstrated exceptional team spirit.

American Express does not just recognize its top sales producers. The sales managers let their salespeople know that they appreciate good performance and show that the company appreciates even modest successes whenever they occur.

The objective of this American Express incentive program is to bring salespeople's motivation to its highest possible level, to foster a spirit of team work and high morale in the sales force. Contrasting with the type of centralized motivation programs that have been discussed in the preceding chapter, American Express has developed a highly decentralized motivation program that gives salespeople the leeway to select their own performance levels.

Does better training result in an increase in sales?

Raleigh, an important independent distributor of bicycles, had just hired a new sales manager. Shortly after taking the job, this sales manager realized that in order to increase the firm's customer basis, it was essential to redefine the sales force mission. Salespeople had to become the best consultants for their clients. A prerequisite to do this was to provide salespeople with knowledge, not just about products, but also to give them some basic understanding of fields such as accounting and inventory management so they could provide their independent clients with useful advice when needed. The objective was to develop high value-added partnerships with customers.

The sales manager quickly realized that all the field salespeople needed additional education and training. The objectives of the necessary training program have been defined as “developing a basis for mutual understanding and dialogues between customers and salespeople in order to implement a more consultative approach to selling.” An external trainer was hired to provide the training. The sales manager looked at several training agencies so he could select the organization that was best equipped for providing the required service, and which could eventually provide the best follow up program.

All the regional sales managers worked closely with the trainers in order to define twelve areas in which sales staff needed to make some progress (for example, the best ways to uncover and address customers' needs and problems, or to handle customers' objections).

Two control philosophies

The president of a well-known consulting firm does not believe in quantitative objectives for salespeople. He claims that instead of focusing on quantitative objectives by asking a salesperson to meet a given sales volume target, it is better to provide qualitative objectives, such as prospecting a target segment of customers. According to this company president, sales managers should not limit themselves to assigning individual objectives because, although individual objectives induce salespeople to remain committed, only collective action makes the difference.

The president of another major corporation holds quite a different view and asserts that qualitative objectives do not work with salespeople. According to him, only two objectives matter: sales volumes and gross margins. He was reported to say in an executive meeting: “One should stop talking nonsense with those qualitative objectives, number of calls, and so on that lead to evaluate salespeople according to subjective criteria. In addition, selling is an individual sport. Consequently, except for the year end party when the total objective is met, I cannot see what can be done in common.”

How can such dramatically opposed points of view be reconciled? Which of these two executives speaks the truth?

In fact, there is some truth in both arguments. They are only limited by the fact that each executive gives his own vision of the sales force dynamic management process. However, these are far from being incompatible.

The dynamic management and sales force size control at Syntex Laboratories

A few years ago, Syntex Laboratories implemented a decision support system to estimate the optimal size of the sales force they should use (Lodish, Curtis, Ness, and Simpson 1988). Managers at different hierarchical levels estimated the sales market sensitivities to selling effort for various product lines and market segments. The sales force resources (reflected by mentions of a product or details) were optimally allocated to products and market segments. The objective was to allocate salespeople's time to those calls and mentions that were the most profitable to the firm. The final solution was provided as a list of the average number of mentions of each product that should be made to clients in every market segment.

The total time resources (and consequently, the required number of salespeople and the size of the sales force) were gradually increased until net profits started declining. As a result, it was possible to estimate the optimal sales force size and the optimal allocation of the resources simultaneously.

The procedure led to an increase in the size of the sales force from 433 to over 700, which was much larger than had been anticipated by management. The Syntex managers, however, had developed such confidence in the procedure that had been followed during the decision-making process, that they decided to accept those conclusions and dramatically increased their sales force.

Successive sales organization changes at Hewlett-Packard

A few years ago, Hewlett-Packard adopted a completely new sales organization structure. The company was split into several autonomous divisions that drew their resources from headquarters, and that were entrepreneurially and autonomously managed, with complete responsibility for marketing and sales.

In addition, HP established a new CSO division (Computer Systems Organization) which was responsible for marketing a whole line of computers, ranging from individual work stations to powerful units for heavy users. By adopting more open systems, the major selling arguments shifted from equipment's performance and price to customers' added value. The new emphasis was to help customers to find the best possible solutions to their problems, even if this meant using components from a competitor.

In order to provide those services, HP salespeople needed to acquire strong expertise in their clients' problems. HP changed the geographical organization of its sales force so that it was organized by customer type (banking, insurance, industrial buyers, etc.) This was necessary so that the sales staff could understand customer problems within their sector.

However, HP soon realized that this sales force organization was not optimal. Because the salespeople always faced the same type of problems, they also tended to sell the same kind of products and so lost experience in selling the whole line of HP products, from computers to printers.

Why write a new book on sales force management? Obviously, sales and marketing managers have long supervised and controlled salespeople without resorting to the concept of a dynamic sales force management process. Nevertheless, this integrated vision of the control and management of a sales force is likely to add a new dimension to the “classical” conception of sales force management. This new integrative dimension brings together the multiple and complex aspects of a sales force system. This book shows how sales managers can be more effective when they develop such an integrative vision of their mission.

The concept of dynamic management process encompasses more than the traditional managerial functions of situation analysis, planning, program implementation, and control. It includes also the definition of strategic objectives, the translation of those mission objectives into operational and tactical plans and decisions, the constant adjustments of these plans over time, as well as the necessary adaptations of the organization during the process.

The dynamic sales force management process concept relies on a clear vision of a succession of sales missions to be accomplished over time by all the members of a sales team. At each level, the various members of a sales force develop their strategies and tactics that must all contribute to fulfilling the overall missions. The proposed concept builds on the prevalent philosophy of customer relationship management (CRM), and the development of long-term customer relationships that are mutually beneficial.