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

© Cranfield University 2008© 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 2008© Cranfield University 2009 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 2008© Cranfield University 2009 Methodology: Systematic Review Page 4 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’: In total, 131 prescriptions were created from 94 papers Contextual factors influencing measurement effectiveness were then extracted and grouped C ontext I ntervention M echanism O utcome

© Cranfield University 2008© Cranfield University 2009 Definitional Perspectives ApproachFocus PsychometricCorrectness (validity and reliability) Performance Management Appropriateness, suitability or “fit” Sales Effectiveness Achievement of individual or organizational outcomes Approach Advantages Disadvantages Behaviour-Based  Allows management dictate approach and focus  Removes factors outside a salesperson’s control  Requires significant monitoring of salesperson  Introduces subjectivity bias Outcome-Based  Allows salespeople to develop situation- specific strategies for success  Ties compensation to firm financial performance  Sales person focus may not align to organizational priority  Difficult to identify and manage uncontrollable factors influencing outcomes Sales Performance Measure 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. Sales Performance Measurement Effectiveness

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

© Cranfield University 2008© Cranfield University 2009 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 Page 7

© Cranfield University 2008© Cranfield University 2009 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 Page 8

© Cranfield University 2008© Cranfield University 2009 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. Page 9

© Cranfield University 2008© Cranfield University 2009 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 Page 10