Evaluating the Effectiveness of the Organization Module Nine Evaluating the Effectiveness of the Organization

Evaluating Effectiveness An Expert’s Viewpoint: Sovereign Bank recently installed Salesnet, a sales force automation product. According to Bill Pattern, director of MIS and project administration, “We can look and see who our prospects are the probability of closing. Tracking our pipeline is an enormous amount of our responsibility.” The software also allows managers to monitor salespeople’s performance and productivity. Action

Evaluating Effectiveness An Expert’s Viewpoint: Result According to Pattern, Salesnet pays for itself. It has reduced paperwork and improved sales productivity. The system allows managers to better analyze sales and customer relationships, more carefully track sales force productivity, pinpoint problems, and define opportunities. As such, it not only helps track sales force effectiveness, but helps improve it.

Sales Organization Effectiveness vs. Salesperson Performance Organizational Factors Sales Organization Effectiveness Salesforce Nonselling Behavior Performance Environmental Selling Behavioral Outcome Characteristics Control System

Sales Organization Audit Comprehensive, systematic, diagnostic and prescriptive tool. Assesses the a firm’s sales management process Provides direction for improved performance and prescription for needed changes. Should be performed regularly, Should be conducted by someone from outside the sales organization. Although it is an expensive and time-consuming process, the sales organization audit generates benefits that usually outweigh the costs. 3

Sales Organization Audit Framework SALES ORGANIZATION PLANNING SYSTEM Objectives Sales Management Program Implementation of the Program Sales force Management Auditor SALES MANAGEMENT FUNCTIONS Sales force Organization Recruitment and Selection Sales Training Compensation and Expenses Supervision, Morale, and Motivation Sales Forecasting Budgeting Quotas Territories and Routing Sales Analysis Cost/Profitability Analysis Sales force Evaluation SALES ORGANIZATION ENVIRONMENT Extra-organizational Factors Economic-Demographic Political-Legal Technological Competitive Market Customer Intra-organizational Factors Company Organization Sales-Marketing Department Links Sales-Other Department Links Marketing Mix SALES MANAGEMENT EVALUATION Adequacy of Sales Managers Adequacy of Management Practices 4

Benchmarking Benchmarking is an ongoing measurement and analysis process that compares an organization’s current operating practices with the “best practices” used by world-class organizations. 7

Implement & Control to Improve Performance Benchmarking Process Analyze & Communicate Determine current performance gap. Project future performance levels. Communicate benchmark findings and gain acceptance. Plan Identify what to benchmark. Identify comparative companies or sales forces. Implement & Control to Improve Performance Establish functional goals. Develop action plans. Implement specific action plans and monitor progress. Recalibrate benchmark. Gather Data Determine data collection method and collect data. 8

Sales Organization Effectiveness Evaluations No one summary measure of sales organization effectiveness. Multiple factors must be assessed Four types of analyses are typically necessary to develop a comprehensive evaluation of any sales organization Conducting analysis in each of these areas is a complex task 5

Sales Organization Effectiveness Framework Sales Analysis Profitability Analysis Sales Organization Effectiveness Cost Analysis Productivity Analysis 5

Sales Analysis When should we count an order as a sale? When an order is place When an order is shipped When payment is received What is the primary metric? Dollars Units 9

Sales Analysis Framework Organizational Level of Analysis Type of Sales Type of Analysis 10

Sales Analysis Framework Organizational Level of Analysis Type of Sales Type of Analysis Sales Organization Zones Regions Districts Territories Accounts 10

Sales Analysis Framework Organizational Level of Analysis Type of Sales Type of Analysis Total Sales Type of Product Type of Account Type of Distribution Order Size 10

Sales Analysis Framework Organizational Level of Analysis Type of Sales Type of Analysis Comparisons with Forecasts Comparisons with Sales quotas Comparisons with Previous period Comparisons within Sales Organization Comparisons with Industry/Competitors 10

Example of Hierarchical Sales Analysis Region 1 Sales Organization Region 2 Region 3 Region 4 District 1 Territory 1 Territory 2 Territory 3 Territory 4 Territory 5 Territory 6 District 5 District 4 District 3 District 2 $62,000,000 $56,000,000 $73,000,000 $11,000,000 $12,000,000 $13,500,000 $7,000,000 $12,500,000 $1,100,000 $1,300,000 $1,250,000 $1,400,000 $750,000 $1,200,000 Additional Analysis 11

Example of Type-of-Sales Analysis Product Type A Type B Type C Account Type Sales Sales $175,000 $275,000 $300,000 $290,000 $285,000 Territory 5 Additional Analysis 11

Types of Analysis Examples Sales District 1 District 2 District 3 District 4 District 5 Sales Quota $250,000 Sales Growth 4% 9% 6% 3% Market Share 26% 29% 18% 27% Effectiveness Index 98 104 102 70 109 $11,000,000 $12,000,000 $10,000,000 $7,000,000 $12,150,000 $13,000,000 $11,500,000 Sales Last Year $10,700,000 $10,350,000 $6,800,000 $12,250,000 $11,050,000 Industry Sales $42,000,000 $45,000,000 $40,000,000 13

Cost Analysis The emphasis is on assessing the costs incurred by the sales organization to generate the achieved levels of sales. The general approach is to compare the costs incurred with planned costs as defined by selling budgets. Corporate resources earmarked for personal selling expenses for a designated period represent the total selling budget. 9

Selling Budgets Developed at all levels of the sales organization and for all key expenditure categories. The basic objective of budgeting for each category is to determine the lowest expenditure level necessary to achieve the sales quotas. Two approaches to setting the selling budget: percentage of sales method objective and task method 9

Selling Expense Categories Compensation expenses Salaries Commissions Bonuses Total Travel expenses Lodging Food Transportation Miscellaneous Administrative expenses Recruiting Training Meetings Sales offices Classification Actual 2002 Original Budget 2003 April Revision July Revision OctoberRevision $14750 $15000 $15500 $15400 $15400 15

Cost Analysis Examples Region 1 Region 2 Region 3 Region 4 $3,660,000 $3,500,000 $3,150,000 $4,200,000 $3,600,000 $3,700,000 $3,400,000 $3,900,000 $60,000 ($200,000) ($250,000) $350,000 Actual Budget Variance $985,000 $2,110,000 $830,000 $2,3400,000 ($45,000) $70,000 ($230,000) $180,000 Compensation Costs Training Costs Actual % Sales Budgeted % Sales 6.1 5.8 5.4 6.0 2.9 3.1 2.6 3.0 15

Profitability Analysis: Income Statement Analysis Full cost approach attempts to allocate shared costs to individual units based on some type of cost allocation procedure Contribution approach only includes direct costs in the profitability analysis 16

Profitability Analysis Example Sales Cost of Goods Sold Profit Contribution Net Profit Gross Margin District Selling Expenses Allocated Portion of Shared Zone Costs Regional Direct Selling Expenses Region $ 24,000,000 $ 8,000,000 $ 45,000,000 $255,000,000 $300,000,000 $ 11,000,000 $ 16,000,000 $ 10,000,000 Full Cost Approach $180,000,000 District 1 District 2 District 3 $ 6,500,000 $ 8,000,000 $19,500,000 $ 11,500,000 $11,500,000 $22,000,000 $28,000,000 $50,000,000 $58,500,000 $70,000,000 $168,500,000 $ 8,250,000 $ 3,500,000 $ 5,000,000 --- Contribution Approach 18

Profitability Analysis: Activity-Based Costing (ABC) Allocates costs to individual units on the basis of how the units actually expend or cause these costs. Places greater emphasis on more accurately defining unit profitability by tracing activities and their associated costs directly to a specific unit. 17

Profitability Analysis: Return on Assets Managed Analysis (ROAM) Calculations provide an assessment of profitability and useful diagnostic information. ROAM is determined by both profit contribution percentage and asset turnover. ROAM = Profit contribution as percentage of sales X Asset turnover rate = `Profit contribution / Sales) X (Sales / Assets managed) 17

Return on Assets Managed (ROAM) District 1 District 2 District 3 District 4 Sales Cost of Goods Sold Accounts Receivable Gross Margin District Selling Expenses Inventory Total Assets Managed Profit Contribution Percentage Asset Turnover ROAM $24,000,000 $24,000,000 $24,000,000 $24,000,000 12,000,000 12,000,000 14,000,000 14,000,000 12,000,000 12,000,000 10,000,000 10,000,000 7,200,000 9,600,000 5,200,000 8,800,000 Profit Contribution 4,800,000 2,400,000 4,800,000 1,200,000 8,000,000 4,000,000 16,000,000 4,000,000 8,000,000 4,000,000 16,000,000 4,000,000 16,000,000 8,000,000 32,000,000 8,000,000 20% 10% 20% 5% 1.5 3.0 .75 3.0 30% 30% 15% 15% 18

Productivity Analysis Compares profits and asset investments Expressed in terms of ratios of inputs to output Productivity improvements are obtained in one of two basic ways: Increasing output with the same level of input Maintaining the same level of output but using less input 19

Productivity Analysis Example Sales Selling Expenses Sales/Salesperson Sales Calls Proposals District 1 $ 1,000,000 9,000 2,000,000 $20,000,000 200 $24,000,000 District 2 District 3 District 4 $ 800,000 $1,000,000 7,500 8,500 10,000 3,000,000 2,400,000 270 260 180 Number of Salespeople 20 30 Expenses/Salesperson $ 100,000 $ 80,000 $ 150,000 Calls/Salesperson 450 250 425 $ 800,000 333 Proposals/Salesperson 11 6 13 9 20