1. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (1) 10 Evaluating the Effectiveness of the Organization Module 10 Evaluating the Effectiveness of the Organization

2. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (2) 10 Sales Organization Effectiveness vs. Salesperson Performance Sales Organization Effectiveness vs. Salesperson Performance (Figure 10.1) Environmental Factors Organizational Factors Salesforce Selling Behavioral Performance Salesforce Outcome Performance Sales Organization Effectiveness Salesforce Characteristics Salesforce Control System Salesforce Nonselling Behavioral Performance

3. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (3) 10 Sales Organization Audit A comprehensive, systematic, diagnostic, and prescriptive tool Purpose - to assess the adequacy of a firm's sales management process and to provide direction for improved performance and prescription for needed changes.

4. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (4) 10 Sales Organization Audit Framework Sales Organization Audit Framework (Figure 10.2) Sales Organization Environment Extraorganizational Factors Intraorganizational Factors Sales Organization Planning System Sales Management Functions Sales Management Evaluation Salesforce Management Auditor

5. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (5) 10 Sales Organization Audit Sales Organization Audit Observations Performed on a regular basis Performed by someone from outside the sales organization Expensive and time-consuming

6. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (6) 10 Improving Sales Organization Effectiveness Improving Sales Organization Effectiveness Benchmarking An ongoing measurement and analysis process that compares an organization’s current operating practices with the “best practices” used by world-class organizations.

7. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (7) 10 Benchmarking Process (Figure 14.3) PlanGather Data Analyze & Communicate Implement & Control

8. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (8) 10 Sales Organization Effectiveness Evaluations Complex task because: –Separate sales analyses need to be performed for the different levels in the sales organization –Many different types of analyses can be performed to evaluate sales, cost, profitability, and productivity

9. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (9) 10 Sales Organization Effectiveness Evaluations Sales Organization Effectiveness Evaluations Sales Analysis Evaluation of sales generated throughout the sales organization Analyze sales dollars or sales units? Three critical decision areas: the organizational level of analysis, they type of sales, and the type of analysis.

10. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (10) 10 Sales Organization Zones Regions Districts Territories Accounts Total Sales Type of Product Type of Account Type of Distribution Order Size Sales Analysis Framework Sales Analysis Framework (Figure 10.5) Sales Analysis Organizational Level of Analysis Type of SalesType of Analysis Comparisons within organization with forecasts with sales quotas with previous period with industry/ competitors

11. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (11) 10 Example of Hierarchical Sales Analysis Example of Hierarchical Sales Analysis (Figure 10.6) Region 1 Sales Organization Region 2Region 3Region 4 District 1 Territory 1Territory 2Territory 3Territory 4Territory 5Territory 6 District 5District 4District 3District 2 Sales $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

12. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (12) 10 Example of Type-of-Sales Analysis Example of Type-of-Sales Analysis (Figure 10.7) Product Type A Product Type B Product Type C Account Type A Account Type C Account Type Sales Product Type Sales Sales$175,000$275,000$300,000$290,000$175,000$285,000 Account Type B Territory 5

13. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (13) 10 Sales Organization Effectiveness Evaluations Sales Organization Effectiveness Evaluations Types of Analysis Examples (Exhibit 10.5) Sales District 1District 2District 3District 4District 5 Sales Quota$11,250,000 Sales Growth 3%9%6%3%16% Market Share 2629% 18%27% Effectiveness Index9810410270109 $11,000,000 $12,000,000 $10,000,000 $7,000,000 $12,750,000 $13,000,000 $11,500,000 $12,000,000 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$45,000,000$42,000,000

14. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (14) 10 Sales Organization Effectiveness Evaluations Sales Organization Effectiveness Evaluations Cost Analysis Evaluation of costs incurred in generating sales throughout the sales organization Comparison of actual to budgeted Comparison of actual to budgeted as a percentage of sales

15. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (15) 10 Establishing Selling Budgets Selling Budget –The total resources earmarked for personal selling

16. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (16) 10 Selling Expense Categories Compensation Expenses –Salaries –Commissions –Bonuses Travel Expenses –Lodging –Food –Transportation –Miscellaneous Administrative Expenses –Recruiting –Training –Meetings –Sales Offices

17. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (17) 10 Methods for Determining the Selling Budget Percentage of Sales Method Objective and Task Method

18. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (18) 10 Region 1 Region 2 Region 3 Region 4 Sales Organization Effectiveness Evaluations Sales Organization Effectiveness Evaluations Cost Analysis Examples (Exhibit 10.8) Compensation Costs Actual Cost $3,660,000 $3,500,000 $4,200,000 $3,150,000 Budgeted Cost $3,600,000 $3,700,000 $3,900,000 $3,400,000 +$ 60,000 - $200,000 +$300,000 - $250,000 Variance Training Costs Actual Cost $ 985,000 $2,110,000 $2,340,000 $ 830,000 Budgeted Cost $1,030,000 $2,040,000 $2,160,000 $1,060,000 -$ 45,000 +$ 70,000 +$180,000 - $230,000 Variance Region 1 Region 2 Region 3 Region 4 Compensation Costs Actual % Sales 6.1% 5.8% 6.0% 5.4% Budgeted % Sales 6% Training Costs Actual % Sales 2.9% 3.1% 2.6% Budgeted % Sales 3%

19. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (19) 10 Sales Organization Effectiveness Evaluations Sales Organization Effectiveness Evaluations Profitability Analysis Evaluation of sales/cost relationships throughout the sales organization Income Statement Analysis –Full cost approach - attempts to allocate the shared costs to individual units based on some type of cost allocation procedure –Contribution approach - only the direct costs are included in the profitability analysis

20. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (20) 10 Sales Organization Effectiveness Evaluations Sales Organization Effectiveness Evaluations Profitability Analysis Example (Exhibit 10.10) Sales Cost of Goods Sold Profit Contribution Net Profit Gross Margin District Selling Expenses Allocated Portion of Shared Zone Costs Region 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 1District 2District 3 $ 6,500,000$ 8,000,000$19,500,000 $ 11,500,000 $22,000,000 $28,000,000 $50,000,000 $58,500,000 $70,000,000 $168,500,000 $ 2,500,000$ 3,500,000$ 5,000,000 --- Contribution Approach

21. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (21) 10 Sales Organization Effectiveness Evaluations Sales Organization Effectiveness Evaluations Profitability Analysis Evaluation of sales/cost relationships throughout the sales organization Activity-Based Costing (ABC) –Allocates costs to individual units on the basis of how the units actually expend or cause these costs. –Exhibit 10.11 - Activity-based Costing Example Return on Assets Managed Analysis (ROAM) ROAM = Profit Contribution % of Sales * Asset Turnover Rate = (profit contribution/sales) * (sales/assets managed) Income Statement Analysis

22. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (22) 10 Sales Organization Effectiveness Evaluations Sales Organization Effectiveness Evaluations Return on Assets Managed (ROAM) Example (Exhibit 10.12) District 1 8,000,000 12,000,000 $24,000,000 7,200,000 $24,000,000 District 2District 3District 4 4,000,000 16,000,000 12,000,000 10,000,000 14,000,000 $24,000,000 14,000,000 $24,000,000 12,000,000 8,800,000 5,200,000 9,600,000 Profit Contribution 4,800,000 2,400,000 4,800,000 1,200,000 8,000,000 4,000,000 16,000,000 8,000,000 32,000,000 4,000,000 8,000,000 20% 10% 20% 1.53.0.75 Sales Cost of Goods Sold Accounts Receivable Gross Margin District Selling Expenses Inventory Total Assets Managed Profit Contribution Percentage Asset Turnover ROAM 30% 15% 5% 3.0 15%

23. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (23) 10 Sales Organization Effectiveness Evaluations Sales Organization Effectiveness Evaluations Productivity Analysis Evaluation of output/input relationships throughout the sales organization 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

24. 1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (24) 10 Sales Organization Effectiveness Evaluations Sales Organization Effectiveness Evaluations Productivity Analysis Example (Exhibit 10.13) 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 2District 3District 4 $ 800,000 $1,000,000 7,500 8,500 10,000 3,000,000 $24,000,000 3,000,000 $20,000,000 2,400,000 270 260 180 Number of Salespeople 20 30 20 30 Expenses/Salesperson $ 100,000 $ 80,000 $ 150,000 Calls/Salesperson 450 250 425 $ 800,000 $ 100,000 333 Proposals/Salesperson 11 6 13 9