Evaluating the Effectiveness of the Organization

1. Evaluating theEffectiveness of the Organization Module Nine

2. Learning Objectives • Differentiate between sales organization effectiveness and salesperson performance. • Define a sales organization audit and discuss how it should be conducted. • Define benchmarking and discuss how it should be conducted. • Describe how to perform different types of sales analyses for different organizational levels and types of sales.

3. Learning Objectives • Describe how to perform a cost analysis for a sales organization. • Describe how to perform an income statement analysis, activity-based costing, and return on assets managed to assess sales organization profitability. • Describe how to perform a productivity analysis for sales organization.

4. Setting the Stage Increasing Productivity and Evaluating Effectiveness at SOLCORP • What did Salesnet do for SOLCORP? • How did the Salesnet CRM package benefit SOLCORP?

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

6. Although it is an expensive and time-consuming process, the sales organization audit generates benefits that usually outweigh the costs. 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.

7. SALES ORGANIZATION PLANNING SYSTEM Objectives Sales Management Program Implementation of the Program • 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 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 MANAGEMENT EVALUATION Adequacy of Sales Managers Adequacy of Management Practices Sales Organization Audit Framework

8. 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.

9. 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 toImprove 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. Benchmarking Process

10. Sales OrganizationEffectiveness 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

11. Sales Analysis Profitability Analysis Sales Organization Effectiveness Cost Analysis Productivity Analysis Sales OrganizationEffectiveness Framework

12. Sales Analysis • When should we count an order as a sale? • When an order is placed • When an order is shipped • When payment is received • What is the primary metric? • Dollars • Units Is it possible tohave an increase in units sold without an increase in sales dollars or profits? Is it possible to have higher sales dollars with fewer units sold and lower profits? What if the order is cancelled? What if the shipment is refused?

13. Sales Analysis Framework Sales Analysis Organizational Level of Analysis Type of Sales Type of Analysis

14. Sales Organization • Zones • Regions • Districts • Territories • Accounts Sales Analysis Framework Sales Analysis Organizational Level of Analysis Type of Sales Type of Analysis

15. Sales Analysis Framework Sales Analysis Organizational Level of Analysis Type of Sales Type of Analysis • Total Sales • Type of Product • Type of Account • Type of Distribution • Order Size

16. Sales Analysis Framework Sales Analysis 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

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

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

19. District 1 District 2 District 3 District 4 District 5 Sales $11,000,000 $12,000,000 $13,000,000 $7,000,000 $12,000,000 $11,250,000 $11,500,000 $12,750,000 $10,000,000 $11,000,000 Sales Quota Effectiveness Index 98 104 102 70 109 Sales Last Year $10,700,000 $11,000,000 $12,250,000 $10,350,000 $6,800,000 Sales Growth 3% 9% 6% 3% 16% Industry Sales $42,000,000 $42,000,000 $45,000,000 $40,000,000 $45,000,000 Market Share 26% 29% 29% 18% 27% Types of Analysis Examples

20. Cost Analysis • Assess the costs incurred by the sales organization to generate the achieved levels of sales. • Compare the costs incurred with planned budget. • Corporate resources earmarked for personal selling expenses for a designated period represent the total selling budget.

21. Selling Budgets • Developed at all levels of the sales organization and for all key expenditure categories. • Objective 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

22. Original Budget 2003 Actual 2002 April Revision July Revision OctoberRevision Classification Compensation expenses Salaries Commissions Bonuses Total Travel expenses Lodging Food Transportation Miscellaneous Total Administrative expenses Recruiting Training Meetings Sales offices Total Selling Expense Categories

23. Compensation Costs Training Costs Actual Budget Variance Actual Budget Variance 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) $300,000 $985,000 $2,110,000 $830,000 $2,3400,000 $1,030,000 $2,040,000 $1,060,000 $2,160,000 ($45,000) $70,000 ($230,000) $180,000 Actual % Sales Budgeted % Sales Actual % Sales Budgeted % Sales Region 1 Region 2 Region 3 Region 4 6.1 5.8 5.4 6.0 6.0 6.0 6.0 6.0 2.9 3.1 2.6 3.1 3.0 3.0 3.0 3.0 Cost Analysis Examples

24. Profitability Analysis Analyzing the profitability of different organizational levels of different types of sales. • Income Statement Analysis • Activity-Based Costing • Return on Assets Managed

25. Profitability Analysis:Income Statement Analysis • Full Cost Approach: Allocate shared costs to individual units based on some type of cost allocation procedure. • Percentage of Sales: Expenditure percentage multiplied by sales forecast. • Objective and Task: Budgets and objectives/tasks are tied together during planning. • Contribution Approach: Include only direct costs in the profitability analysis.

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

27. 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.

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

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

30. 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

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

32. A salesperson has been on the road for a week and incurs laundry expenses. He knows that if he places the laundry expenses under the miscellaneous expense category in his expense report, he will have to provide receipts. He decides that he can include them under the meals category because receipts are not required for this category as long as he stays under his per-diem allowance. A salesperson is trying to get the customer to purchase a new product. He decides to take three individuals from the customer’s firm to dinner and a basketball game, even though he knows that he has exceeded his entertainment budget for the month. He thinks about hiding these entertainment expenses in different categories in his expense report. Ethical Issues