Towards a Framework of Sales Performance Measurement Effectiveness

Towards a Framework of Sales Performance Measurement Effectiveness Peter Kerr, Javier Marcos-Cuevas Cranfield School of Management GSSI 2014 Conference London, 11 -13 June 2014 © Cranfield University 2009

Background § Measures of sales performance play a critical role in sales force compensation, motivation, alignment and control § Often used as dependent variables in sales performance research… § …yet there is not a widely accepted set of approaches or frameworks for the design and implementation of effective performance measurement systems in sales § Myriad of measures with no guide posts for choices § Potential erroneous assumptions being made § Interchangeability of measures § What constitutes high vs average vs low performance © Cranfield University 2009 2008

Aims and objectives § This research aims to begin to move towards a framework of sales performance measurement effectiveness by § Establishing a definition of sales performance measurement effectiveness § Mapping the contextual elements that must be considered when designing effective sales performance measurement systems § Identifying the possible theoretical mechanisms which explain the relationship between performance measures and organizational outcomes under specific contextual conditions © Cranfield University 2009 2008

Methodology: Systematic Review Question: When designing effective measurement systems in sales, what are the contextual elements that must be considered? Article Selection Data Synthesis CIMO-Logic • Empirical findings related to measurement effectiveness were extracted from each article in the form of ‘logical prescriptions’: Context Intervention Mechanism Outcome • In total, 131 prescriptions were created from 94 papers • Contextual factors influencing measurement effectiveness were then extracted and grouped © Cranfield University 2009 2008 Page 4

Definitional Perspectives Sales Performance Approach Behaviour-Based Outcome-Based Advantages Allows management dictate approach and focus Removes factors outside a salesperson’s control Allows salespeople to develop situationspecific strategies for success Ties compensation to firm financial performance Disadvantages Requires significant monitoring of salesperson Introduces subjectivity bias Sales person focus may not align to organizational priority Difficult to identify and manage uncontrollable factors influencing outcomes Measure Effectiveness Approach Focus Psychometric Correctness (validity and reliability) Performance Management Appropriateness, suitability or “fit” Sales Effectiveness Achievement of individual or organizational outcomes Sales Performance Measurement Effectiveness A set of practices which lead to appropriate and psychometrically correct behavioural or outcome-based representations of sales performance while delivering desired organizational and/or individual outcomes. © Cranfield University 2009 2008

Derived Conceptual Framework Situational Variables © Cranfield University 2009 2008 Page 6

Theoretical Mechanisms Identified § Theoretical mechanisms explaining the relationship between measurement systems and organizational and individual outcomes are plentiful in the literature – with 64% selected articles hypothesizing on a relationship § The literature identifies 6 potential mechanisms influencing outcomes: § § § Level of Alignment Employee Fairness Employee Control Motivation Informativeness Role/Task Clarity © Cranfield University 2009 2008 Page 7

Contributions This paper makes 3 contributions: 1. A conceptualization of performance measurement effectiveness in sales which integrates two separate fields – business performance management and individual sales performance § Posits that a range of organizational outcomes needs to be considered in the conceptualization of performance measurement effectiveness § This broadens the traditional definition of sales performance measurement effectiveness as organizational outcomes are currently being treated in a limited way by the literature 2. Identification and classification of important contextual factors influencing performance measurement effectiveness in sales § § Important because there has not been a comprehensive exploration and categorization of the contextual factors before Three broad categories can be identified: organizational characteristics, characteristics of the business environment and characteristics of the selling environment 3. Extends contingency theory into the domain of individual sales performance measurement § Aids in explaining the differences in the effectiveness of measurement systems © Cranfield University 2009 2008 Page 8

Implications for Future Research § Multi-Situational Factor Research Opportunity § Significant research has been done around how individual contextual factors influence the relationship between performance measurement systems and organizational outcomes § Sales people operate under multiple situational factors simultaneously and some of these individual factors may be associated with different and sometimes conflicting outcomes § The literature is currently silent regarding the net impact on outcomes resulting from measurement system interaction with multiple situational factors. © Cranfield University 2009 2008 Page 9

Implications for Practice § While measurement accuracy is important it is insufficient on its own to achieve measurement effectiveness in sales performance § Sales performance is a multi-dimensional phenomenon – effective measures reflect an understanding of what dimensions of sales performance are being measured § Measures are not simply interchangeable – the may be measuring different dimensions of sales performance; Managers must understand what dimensions of performance are important to the firm. § An understanding of one’s situational context is important to ensure the appropriateness and fit between measurement choices and the selling situation § Organizational outcomes need to be prioritized to allow for trade-offs between desirable and undesirable outcomes of performance measurement use © Cranfield University 2009 2008 Page 10